Monday, November 22, 2010
Strategic Planning Analogy #365: Strategy by Appearance
In the world of fast-food restaurants, Wendy’s wants to be known as the place for fresh, healthy, natural food. They refer to that as “real food.” To quote Ken Calwell, Chief Marketing Officer of Wendy’s, "We want every ingredient to be a simple ingredient, to be one you can pronounce and one your grandmother would recognize in her pantry.”
To build upon this image, Wendy’s recently reformulated its french fries, the first reformulation in 41 years. The new fries are called “”Natural Cut French Fries with Sea Salt.” The two key elements of the reformation were as follows:
1) Replace regular Rock Salt with Sea Salt.
2) Leave the Potato Skin on the french fry.
The idea was that sea salt is associated with healthiness more than regular rock salt. In addition, leaving the skin on shows that these are real pieces of potato, not a processed potato slurry. In combination, this gives the impression that the new fries are a healthier, fresher, more natural food.
But here is what Wendy’s is not advertising. Salt has sodium, whether it is sea salt or regular salt. And the new fries have more sodium than the old fries. One report I saw said the sodium for a regular serving went up from 350 to 370 milligrams of sodium. Another report I saw said the new fries have 500 milligrams of sodium. Either way, it is more sodium, and that is not good for you.
In addition, the new fries from Wendy’s have more calories per serving than the ones they are replacing.
No wonder tests showed that people liked the taste more—there was more sodium and more calories. Yet the new formula gives the impression that the new fries are healthier. That’s a pretty neat trick.
Great strategies own a great position in the marketplace. But what does it mean to “own” a position? Positions aren’t owned just because the facts are on your side. Look at Wendy’s. Their new french fries really aren’t all that fresh and healthy. The facts say they are increasing the sodium and the calories. Yet Wendy’s is building a stronger reputation for its fresh and healthy position with these new fries.
No, positions aren’t owned based on published facts. They are owned based on consumer impression. Or, to quote Jack Trout and Al Ries, positions are won in the mind of the consumer. And the consumer makes up his or her mind based on a variety of inputs—and not all of the inputs agree with the facts (is sea salt sodium really better than rock salt sodium?).
So, just as Wendy’s marketing success is based a lot on impression (rather than fact), so is strategic success. Just because you have all the facts on your side does not mean that your strategy will succeed.
Instead, strategies win when they cause behavior to change in your favor. And you will not create a change in a person’s behavior until you first change how a person thinks about that situation. After all, if my impression towards your brand hasn’t changed, then why should you expect me to change my actions towards your brand? Therefore, strategies need act like Wendy’s and incorporate strong impression triggers (like sea salt and skin-on-potatoes) to help increase the desired change in impression.
The principle here is two-fold. First, strategic management is really the management of mental impressions of all the key stakeholders. For example, if you want competitors to back away, then give them the mental impression that attacking you would be a fool’s errand. If you want consumers to prefer you, then give them the mental impression that you are the best at meeting their needs. If you want to get adequate financing for your strategy, give the lenders the impression that you are a great credit risk. And so on…
The second principle is that effective management of mental impressions requires more than just facts. Minds are influenced in a variety of ways. For example, there is a reason why lawyers and bankers tend to have elaborate offices. It is because banking and legal competency is difficult to see at first glance. Therefore, elaborate offices act as a visual substitute—a quick way to create a mental impression of competency and expertise (They must be competent, because how else could they afford these elaborate offices?). The elaborate office is their version of the sea salt.
Therefore, when creating your strategy, you need to consider two things. First, what are the impressions I want in the minds of all the stakeholders? Second, what can I use as visual triggers to make that impression stronger?
One of the best examples of visual triggers was Oxydol detergent. Back in the middle of the 20th century, Oxydol’s strategic position was to claim superior cleaning due to putting bleach right in the detergent. This was a hard position to sell, because the detergent looked just like all the competitors. Why should a customer change their mental image and view Oxydol as superior?
That was when Oxydol started coloring 5% of the detergent with a harmless green dye. Suddenly, Oxydol looked different from everyone else. Now that consumers could see an obvious difference, they were more willing to change their mental impression of the brand. It must be better, they thought, because it has green crystals not found in any other brand of detergent. So even though the green crystals did not change the cleaning ability of the detergent, they got people to believe more strongly in the superiority of Oxydol’s bleach-in-the-detergent strategic position. This lead to Oxydol becoming the leading detergent in the US for many years.
In the early years, when Wal-Mart was trying to establish its low price strategic position, it would get into massive price wars with everyone. One of the more famous price wars had to do with the price of blue jeans. Wal-Mart and another retailer kept taking turns trying to get a lower price than the other on blue jeans. Eventually, Wal-Mart lowered the price to 9 cents—virtually free.
How did these dramatic and highly visible price wars impact mental impressions? Well, first, consumers became more firmly convinced that Wal-Mart would do anything to have the lowest price. They became so confident that Wal-Mart was always lowest priced that they did a little less price checking. They just assumed they would be better off shopping Wal-Mart. Second, other retailers learned that it was futile to try to beat Wal-Mart on price. As a result, other retailers voluntarily let Wal-Mart get a small price advantage in order to avoid future price wars. In the end, the strategic price position was stronger and competition was weaker—because of a superior management of mental impressions.
As a side note, I think one of the reasons why Wal-Mart has struggled a bit internationally is because they did not do as much of the radical visual examples of price dropping in these countries as they did early on in the US.
In a more recent example, think about Progressive Insurance. Progressive wanted to own the low price position in US auto insurance. The problem is that nearly all auto insurance companies claim to have competitive prices. And insurance can be so complicated that it is hard to make direct comparisons to validate those claims. Therefore, a visual substitute was needed—their version of sea salt or elaborate offices.
The answer was in providing comparisons. Whenever you ask Progressive to give a price quote, they will simultaneously provide the price quote for a few of their competitors. This leads to the following mental impression: Progressive must be really confident that they have lower prices, because they are willing to give you quotes for the competition as well. If Progressive is that confident in their low prices, then I should be, too.
Back in the mid 20th century, Total cereal owned the position of most nutritious cereal in the US. They did this buy guaranteeing that each serving of the cereal had 100% of the essential vitamins. Then, in the 1970s, a new type of cereal started to take away that position from Total. The new cereal was a granola-based cereal, in particular a version produced by Quaker. Quaker created the mental impression that granola cereals provided superior nutrition, because it was similar to those muesli cereals sold in the health food stores, which are popular as the healthy breakfast in much of the rest of the world.
Total was losing the mental impression, even though the facts would show that Total had more vitamins and minerals than the granola cereal. General Mills seriously considered ceasing production of Total cereal—shutting down in defeat. In the end, they decided to try one last time to regain the mental impression. They did it though commercials showing how many bowls of granola one would have to eat to equal the nutrition of one bowl of Total. It was a strong visual statement—a tableful of granola bowls versus one bowl of Total.
In the end, Total regained its position and is still going strong even today. The Quaker granola cereal—in its original form—is no more.
For strategies to succeed, they much change behavior in the marketplace to one’s benefit. Behavior only changes after mental impressions are first changed. Therefore, effective strategies are designed to change mental impressions. However, just having the facts in your favor may not be enough to change mental impressions. Therefore, great strategies not only find great positions, but also great visual cues to easily drive home that position in a strong way—even if the visual cues have little to do with the facts.
Don’t think that this principle only applies to consumer strategies. It also applies to the world of B to B. Mental impressions impact industrial and business buyers as much or more than consumer buyers. An industrial buyer can lose his or her job if their decisions appear unwise. Therefore, they also look for those visual cues that will bring more approval from their bosses (who may not understand the “facts” behind the decisions).