The roll-up or roll-over of mid-sized companies

Our team member, Rick Hubbard, found this clever video recently. (Click on the link and scroll down in the article to find the video). It was produced to spotlight the conglomeration of smaller ad agencies and what can happen to them. We liked it because it is not just ad agencies that get acquired and “changed.”

In the November 30, 2019 issue of Forbes, they had an article featuring Bigelow Tea. The article, “High Tea“, talks about this family owned business, which is actually run as a B Corporation, a For Benefit enterprise. It’s socially conscious focus is an integral part of its ‘being,’ and allowed it to become a B Corporation.

Cindi Bigelow is the second generation family member, who is grooming a third generation. Their fame is originally from the Constant Comment tea, which was developed by her grandmother, and is a secret recipe. (Kinda like Coca Cola).

They are constantly “hit on” to be bought out, which is not happening because, like this video, (click on the link and scroll down in the article to find the video) they know what would happen.

Mitch

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Assumptions That Can End You

Last week we posted regarding assumptions and how they can lead to a company’s demise. We got a large example of this right after our post, when Dean Foods filed for bankruptcy. Dean is the largest milk company in the US, and their failure to accept and adapt to changing consumer trends doomed them.

The NY Times published a piece on Dean which included this excerpt: “Long ago, the public figured out that diets do just fine without milk and no, we don’t have to drink three glasses a day,” said Marion Nestle, a food studies professor at New York University. “Maybe plant-based milks are the coup de grâce, but this industry just can’t seem to keep up with changing tastes.”

Did arrogance play a part in their missteps? Don’t know, but if not that, how can you miss the trends that have been going on for years, unless you just don’t talk to customers or pay attention.

And Dean is just one example. The Times cites Kraft Heinz as well. “Like Kraft Heinz, Dean Foods has watched from the sidelines as smaller rivals dominated the growing market for trendy alternatives, like almond milk and plant-based dairy products. In fact, in 2012, the company started spinning off its units that made such alternatives — a move that in retrospect looks like a strategic error.”

In addition, channel concentration has caused these companies to also have to deal with private brands and their increasing power. Again, not a surprise, if one talks to customers and accepts what the market is showing.

Other trends that were easy to spot if one was not blinded by arrogance were the shift away from cereal for breakfast to breakfast bars, which aren’t consumed with milk. Yogurt has seen an increase in consumption, something Dean does not produce, and Starbucks shifted to almond milk for many of its customers who prefer it. The signs were there.

As we said last week, if you listen to the customers trends are obvious. If not, your successors will deal with the fallout.

Mitch & Neil

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Under What Assumptions Do You Operate That Are Not Accurate?

We believe this is a fundamental question that can make or break your strategy. As Mark Twain famously said, “It ain’t what you don’t know that gets you in trouble. It’s what you know that ain’t so.”

A brief review of strategic thinking and the approach to effective strategy notes that you start with assumptions. Assumptions about the future; the economy; your market; your competitors, etc. Assumptions that are invalid lead to failure.

What checks do you have in place regarding your assumptions? An article entitled Hubris in Leadership: A peril of unbridled intuition? delved into the issue.

“Leaders, CEOs and entrepreneurs by virtue of their position and power do not have as many ‘social correctives’ as do other employees: they are, in their relative isolation, especially vulnerable to hubris. Take Lehman Brothers under the leadership of Richard Fuld as one example of CEO hubris leading to extreme performance.

However, independent financial analyst Charles Peabody argued that Fuld, a 30-year veteran of the company, overlooked the potential effects of real estate loans and other toxic assets on the balance sheet with ‘the typical hubris that a long term CEO has: ‘‘I built this thing, and it’s got more value than the marketplace understands.’’

CEOs may be aware of the perils of hubris, but may be blind to it themselves; for example, enquired of a group of NASDAQ CEOs in a workshop ‘what was the thing that led to most executive failures?’ The unequivocal response was ‘hubris’. Ironically Richard Fuld himself commented prophetically to Euromoney magazine in 2005 that ‘I worry that we could get arrogant. If you get arrogant, you lose your way, and start making mistakes’.

It is also a tragedy for Mr. Fuld, in the classical Greek sense. He had devoted so much of his life and his personality into molding the bank, he could not accept its decline. If he had sold out earlier, Lehman might have survived but he was too proud. It was hubris, followed by nemesis.”

We have found that one of the benefits of an effective CEO Roundtable Group like Vistage, TAB and others is the ability to have peers call you on your assumptions. In addition, we believe there is a very effective method to help prevent assumption bias.

We recommend leaders spend 25% of their time meeting with your market: customers and prospects and listening to them. What is driving their business? What can you do to help? What else do they need? What are their concerns? And those are just a few of the things you can learn. This is qualitative and experiential. And it works.

In addition, you can gain a clear understanding of the size of your market. Measure whether you are growing faster than your market, and most importantly, listen for what you’re not doing.

This will always help you keep your Revenue Production System strategy properly aligned with your market, and help you from having invalid assumptions.

Neil & Mitch

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United to Become More Customer Centric … Sure

United Airlines had its first ever global media event last week to kick off a “new United.” The CEO wants the media to start asking what’s next instead of what’s wrong. Maybe.

According to the Chicago Business Journal, a group of United’s top execs explained in great detail how the airline is evolving into a customer-centric carrier. Given that airlines are my go-to example of how to be non-customer-centric, this seems beyond a stretch goal for the airline.

They mentioned five key things they are going to do and I accept that at least two of them are actually customer-centric. The other three are also customer-centric, but they will impact fewer passengers.

The one that got my attention is bigger overhead bins to allow more bags to be carried on. I might add that the headline for the article in the Journal was about bigger overhead bins,

They also are using their brains to figure out if they can hold an outbound flight to allow late arriving, connecting passengers to make that connection without impacting the flight. They tout this as a big deal. Readers of this blog will note that Southwest does that often, as I cited in an example.

They are going to introduce a new, hot breakfast item, wow. A redesigned business class and developing more sustainable fuels. That’s nice.

I commend them for their efforts. Are they really becoming more customer-centric? Don’t know. If they don’t change the metrics by which they manage, it won’t really matter. But time will tell.

Mitch

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Metrics That Don’t Matter

As you may know, US airlines keep track of actual on time arrival and departure information and it is publicly available. Late flights arriving or departing are tracked.

A belief exists that this information helps the public select flights. The reality is that most delays are weather or traffic related and all airlines serving airports with weather or traffic problems will have similar results. Thus we have a metric that doesn’t matter.

And yet it drives behavior of the airlines. I have personally had a gate agent close the door in my face because the flight had to leave on time and she was not going to reopen the door to board me. Flight crews and ground personnel obsess about this metric to the detriment of passengers.

Recently I watched Southwest, create a delay of 20 minutes on three flights (the metric is 15 minutes is defined as late). They did this by swapping aircraft to prevent one flight from being 1 hour late and screwing up passengers on that flight from making their connections. Those 20 minute delays (which actually may have resulted in less upon arrival) dinged them on 3 flights, but allowed virtually all passengers to make their connections.

The fact that Southwest exclusively flies 737 aircraft also makes it easier for them to make that swap.

Congrats to Southwest for allowing passengers to come before metrics that don’t matter.

Mitch

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Product Marketing vs Product Management

The terms Product Marketing and Product Management are often interchanged, misused and/or misunderstood. They are two of the four roles of Marketing. This video helps to clarify the important distinctions between these two roles.

Mitch & Ralph

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Aligning Marketing and Sales

The challenge of creating alignment between Marketing and Sales is decades old … and on-going. We believe the issue continues because people have been looking for a solution in the wrong place. This short video, suggests a real solution.

Ralph and Mitch

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What the Heck is B2B2C Marketing?

The construct of B2B2C Marketing (Business to Business to Consumer) is a relatively newly named construct (2015 or so). What is it exactly? Like many things in the Marketing space it depends upon who is defining it. I will argue later in this post that there is only one process that constitutes actual B2B2C Marketing, and the rest are inaccurate definitions of what is actually going on.

Let’s start with a simple set of definitions. The first will be for B2B and B2C Marketing and leave out the B2B2C issue for a moment. B2C Marketing is the approach used to sell products or services directly to consumers whether through retailers (channel), on-line, or direct. This is the most common form of marketing. And to be fair, as you will read later, some experts suggest that selling through a retailer makes it B2B2C Marketing. A definitional disagreement and I also fundamentally disagree.

B2B Marketing is generally done by a company where their products are used by businesses. This can be a bolt used in a piece of equipment up to and including complex equipment or services used by companies. To further compound things we should define the term end-user as it relates to B2B. This is the person (or people) within the business who ultimately use the product or service sold to the business, and they may not actually be the buyer of that product or service for the business.

Thus we have a few terms for people who use what is sold/marketed: the consumer, generally the person who buys an item in a B2C sales; the customer (which can also be a consumer, but for clarity we will separate the term) who is the business entity who buys the item. This is not to be confused with a distributor, retailer or similar entity. These are not customers; though many companies refer to them as customers to differentiate them from the “end customer” in the case of B2B, or the consumer in the case of B2C. And lastly the end-user, who is the person who actually uses the product/service in the company that bought the product/service in a B2B transaction.

Confused yet?

One of the trends that many B2B Marketers have been late to the party in understanding is the fact that even though the products or services are purchased by and used by businesses; humans buy them. Thus, many astute Marketers caught on decades ago that aspects of B2C Marketing can be used effectively to sell B2B products and services. Modern trends are resurfacing this idea and include emotional based content as an example. How the user “feels” about their experience with or connection to the product/service is a powerful purchase motivator, even in B2B.

Another common example is selling thru industrial (or similar) distributors and now focusing also on the end-user. This is a bogus example of B2B Marketing. Not because you aren’t selling to businesses (the end-user in this case) but because you may think the distributor is a customer.

Distributors don’t buy anything they don’t expect to be bought by an end-user (either a business end-user/customer or a consumer). If your Marketing team focuses exclusively on the Distribution channel you will end up at the mercy of that channel. Your Marketing attention must focus on creating demand from the marketplace (whether business customers or consumer customers), not just trying to get distributors to carry the products. In fact, they won’t if they don’t have any demand. This is also an example of what some call B2B2C Marketing. It is not just because the distributor is not really buying anything to keep it. This is business to channel to customer/consumer. B2C2C if you like.

Another example of so-called B2B2C is influencers. Two examples that come to mind are medical professionals and financial services companies. Medical professionals do not buy anything on behalf of their patients, and only a few resell products, as a distributor. They recommend, and their advice is usually followed. Thus, medical products companies and drug companies usually work hard to get the medical community to recommend. This clearly requires a marketing effort, but it does not involve B2B sales. In truth some medical professionals (more all the time) are not open to having meetings with drug or device sales reps.

In a slightly different case, a surgeon may implant a device in a patient and usually the patient has no choice if they want a device other than the one the surgeon uses (other than to change surgeons). Again, this is not really B2B Marketing because the surgeon only needs to feel the device will work best for her patient and be comfortable using it. They are not buying it. This clearly requires marketing, but not really B2B.

Financial services companies sell their products thru professionals, either a captive network of sales people or a network of independent sales people. (In all cases these people are called financial advisers or insurance agents/brokers, not sales people, even though that is what they are.) Again, these agents/advisors are buying nothing. To suggest this is B2B2C sales is to suggest that any sales organization constitutes a B2B2C process, which they do not.

If you want to make a case for B2B2C Marketing and suggest that this is different, well all of the scenarios above are different. So what? Giving them the same “name” doesn’t allow for any professional consistency in how the products or services go to market. So, what is the point in pretending they are even similar or should be called B2B2C? Maybe because it’s cool?

What is the only true B2B2C market? Products sold to businesses which, when included in that company’s end-product, make that end-product more valuable to the consumer and therefore matter to the consumer. Many times, these included products are considered to be true “ingredient” brands, other times they are not, but the consumer values their addition and will make a choice to buy (or not) based on the inclusion of the product in the overall end-product they are actually buying.

Clearly a bolt is unlikely to be valuable to the consumer (at least what bolt it is doesn’t matter), but an ingredient could be; such as Dolby or GoreTex. These two companies spent a lot of money making their products valuable to the end-consumer. Many times consumers will ask for GoreTex outerwear. There is no such thing, but some outerwear brands include GoreTex. Dolby created demand so much so that when they were attacked by DTS and other noise reduction technolgy, they held off the challenge. That is true B2B2C Marketing. Making your included product, used by businesses, valuable to their customer constitutes true B2B2C marketing.

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What Is the Customer Actually Buying?

It’s not about what you sell; it’s about what the customer is buying. If you focus only on what you sell it rapidly becomes a commodity. If you focus on what the customer is actually buying, nothing needs be a commodity.

I was reminded of this again last week when the Palessi designer shoe hoax was revealed. In case you missed it, Payless Shoe Source created a “fake” designer store for a line of shoes from a made up designer, Bruno Palessi. They stocked the store with shoes they normally sell in their Payless stores for less than $40 and sold them for up to $600. Same exact shoes. Customers went nuts for these amazing shoes from a “recognized” designer sold in a store befitting the “brand.” (It was a former Armani store used for this “stunt.”)

Same shoes almost 10x the price because the people were not just buying the shoes. Want to sell your goods and services at higher prices? Stop focusing on what you are selling and consider what the customer wants to buy from you they might not be able to buy anywhere else?

Mitch

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The Power of Who and the Power of Focus (Part 10)

For many years, we have espoused the idea of knowing Who should be your customer, and, sometimes more importantly, Who should NOT be your customer. Some recent research suggests that this is powerfully true in terms of customer satisfaction as well.

The July-August 2018 issue of the Harvard Business Review reports on a study done of thousands of banking customers and hundreds of banks that showed a remarkable correlation between reported customer satisfaction and who the bank “typically” serves. The study found that the variation in reported satisfaction had little to do with any other variable. In other words, the more the bank served those customers it was designed to serve, the better the level of satisfaction. The more it strayed into other bank services the less satisfied were its customers.

This again reminds me of the importance of focus. The narrower your focus the better your results.

The research demonstrates that to improve customer satisfaction, it’s not just about training, it’s about focus on attracting the right customers who value what you are designed to offer. If there aren’t enough of those customers, that may be a strategy issue for you.

While this research is about banks, there is no reason to believe it is unique to banks. Decide Who you want to serve and develop offerings and processes to support those offerings for those customers.  Be transparent about who you are “for.” Know who you are going out for business to serve, and focus on them.

Mitch

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