Strategic Planning Analogy #453: What Are You Really Selling?

THE STORY
A few days ago, I wanted to get an idea of what I might save if I changed my insurance.  I went to a web site to get a FREE estimate.  All it asked was a small handful of questions.  Then I hit the “submit” button.

Almost immediately after hitting that button, my phone started ringing.  It was someone offering to talk to me about insurance.  At first, I thought that was an odd coincidence, since the insurance company which called was representing a different company than the one on the internet.  While I was talking to this new company on the phone, I got three messages on my phone saying that three other insurance companies were also trying to contact me. 

For the next four days, my phone rang virtually non-stop from dozens upon dozens upon dozens of insurance companies eager to talk to me about my insurance.  It was a nightmare that wouldn’t stop.

I soon realized that I did not receive a FREE service from that internet site.  I paid dearly with time and aggravation.  

I also began to realize that I had never really been a “customer” for that web site.  No, I was the “product.”  They were trying to sell me like a slave to all of these bidding insurance companies. 

Just before hitting that “submit” button, I did not see anything in the fine print saying I agreed to sell my soul to that company (for no charge) nor that I agreed they could re-sell me like a slave in a bidding auction.

And then, after all that aggravation, I decided that my current insurance was a better deal and did not switch to any of those companies.

THE ANALOGY

In the story, I was initially confused about what was the product and who was the customer.  At first, I thought that I was the customer and the insurance was the product.  As it turned out, I was the product and competing insurance companies bidding for me were the customer.   

A similar confusion can happen when designing strategic business plans.  A successful business plan sells a product (or service) to a customer.  And hopefully, the cost to the business of obtaining or manufacturing/producing that product is less than the price the customer is willing to pay for it, so that you can make a profit.

As we will see in this blog, there are a lot of choices one can make regarding products and customers.  And the most obvious choices might not be the most profitable choices.  Therefore, careful consideration needs to be given to these choices.  It should be an important part in the development of one’s strategy.

In addition, if you are not clear in your business plan as to what is the product and who is the customer, you may create confusion within your organization.  People could focus on producing the wrong thing for the wrong person.  The confusion could create inefficiencies and reduce the profitability of the business model.

 

THE PRINCIPLE
The principle here is that depending upon how you define the customer and the product, you’ll come up with a different strategy.  And if you want an innovative new strategy, consider less-conventional definitions of products and customers.

1) Selling Slaves

Usually, we think of the people we are appealing to (or advertising to) as the customer.  However, as we saw in the story, you can also look upon these people as the product you are selling.

There’s a popular saying that goes something like this: “If the customer is not paying, then they are not really the customer—they are merely the product being sold to the one who is really paying.”

There could be many options for the real customers who are bidding for your “human slave” product.

a) Insurance Companies – In the story, we saw insurance companies as the real customer.  But here’s another example.  Ever see those commercials on TV where lawyers offer to represent you for free if you suffered from something where a lawyer can successfully sue for damages?  You are not the customer.  You are product, being “sold” to the insurance company on the hook to pay damages. 

b) Government – Governments hand out all sorts of money for things like health care, aid to the poor, help for the disadvantaged, etc.  There are plenty of opportunities to represent people in order to tap into government funds.  The people are the product you are selling to the government.  For example, consider all of those TV advertisements for medical devices and supplies.  The commercial says that this stuff is FREE to you, provided you are on government medical assistance.  Another example is commercial universities which aggressively manufacture students in order to tap government student loan assistance.

 
c) Advertisers – Advertisers are buying exposure to their ads.  That exposure is to people, so what they are really buying are people.  Therefore, the media are not really selling their media as much as they are selling the people they attract to the media.  So much of the internet business models are based on giving their content away for free in order to attract other sources of income, like advertising.  When you use these internet sites, you are the product being sold, like when Google sells you in order to get paid ads on their search page.  When internet companies talk about monetizing their sites, what they are really saying is that they are looking for more ways to sell you to more people.

d) Investors - For a lot of start-up companies, the original proposal is not the same as what eventually ends up being the business model.  The service can change and the target market can change.  Knowing this, start-ups understand that the real customer is the investor in the start-up.  The people lured to the start-up are merely the product.  The real selling pitch is to the investment community, because they are the only one paying the bills in the start-up phase.  If the investor wants something else, you change the model to please them, because they are the customer.

Using your imagination, I’m sure you can think of a lot of additional customer types which differ from the users (like parents for children’s products, large employers for daycare centers, future acquirers for small start-ups, etc.).

2) Manufacturing the Right Kind of Slaves

If people are merely slaves to be sold in your business model, then you need to think about them differently.  You are in the business of manufacturing people.  Therefore, you need to think of them in the same way other manufacturers think about their product.

When developing a manufacturing a process, a manufacturer must consider several things, including the QUALITY of the product (% of defects), the APPROPRIATENESS of the product (is it what the customer really desires), the FUNCTIONALITY of the product (does it deliver on the desired features), and the PRICE of the product (can you manufacture it cheaply enough).

So, if you’re selling people, you need to consider these same things about your people-manufacturing model.  It’s not just about gathering lots of people.  They need to be the right people (with the right quality, appropriateness, functionality and price).  And what is “right” depends on the people who are paying the bills (your real customer). 

That’s why it’s so important to clearly define the real customer.  Otherwise you won’t know what they want so you won’t manufacture the right kind of people.

Think about Disney.  One of the most important products Disney creates are people who pay to surround themselves (or someone they love) with manifestations of an icon.  In other words, their best product is someone who would buy everything associated with one of their icons, like Buzz Lightyear.  These are the people who buy all the Buzz Lightyear videos, toys, games, dolls, amusement park rides, posters, pajamas, sheets, underwear, and whatever else the image of Buzz Lightyear is on.  Disney sells this person to all of its divisions as well as to any business who wants to license the icon.

Therefore, the manufacturing of an icon lover goes something like this.  First you create an icon.  Then you create a way to get people to fall in love with the icon (like a movie).  Next, you create all the tie-ins to all the ways for this icon lover person/product to be valuable to others.  Then you sell this person to them, principally through licensing fees.

Therefore, Disney’s goal is not just to have a movie which draws a lot of people.  It has to be the right kind of people—icon lovers.  That’s why the movies are designed to create lovable icons more than to create great entertainment.  Those creating the movie have to understand that in order efficiently manufacture the right kind of movie-goers.

Internet sites need to see themselves in a similar fashion.  The goal is not just to attract a lot of eyeballs.  They need to be eyeballs specifically manufactured to appeal to someone who wants to buy those kinds of eyeballs.    And you cannot do this if you don’t specifically plan the whole thing as seamless manufacturing process.   

And if you want to justify your marketing effort to manufacture that person, use the same type of criteria used to justify efficient manufacturing.  Is it the right type of product and is it produced at a lower cost than you can sell it to others for?

SUMMARY
The real customer is the one who gives you the money.  And in many business models, these customers give you the money in order to access the people you have accumulated.  To optimize this model, one needs to clearly identify the real customer and then find the most efficient way to manufacture the type of people these customers specifically want. 

FINAL THOUGHTS
This is a two-step strategy.  First you manufacture something to lure the right type of people.  Then you package these people so that they are the most desirable to the people who will pay for them.  In the end, that insurance web site didn’t care if I was made happy (which I wasn’t).  What they wanted was to make those other insurance sellers happy, because they were the customer.  I was merely the second stage of their manufacturing process.

Strategic Planning Analogy #283: Run for The Exit

THE STORY
Let’s assume you are inside a large, unfamiliar office building that is on fire. If you do not get out of the building soon, you will die in the fire. Unfortunately, since you are unfamiliar with the building, you do not know the way out. What should you do?

Let’s say that you have three choices. First, you can try to find your way out with a friendly person who is equally unfamiliar with knowing a way out. Second, you can try to find your way out with a scenic tour guide who wants to give you a grand and exciting tour of the entire building before letting you out. Third, you can go with a guide who knows the most efficient path out of the building and is experienced in leading people out of the building.

My guess is that most of you would pick the third choice.

THE ANALOGY
Many times, life can feel like being trapped in a burning building. There are pressures and stresses from every direction. All you want to do is quickly escape and get to a point of safety. Therefore, you look for the option that provides the easiest and fastest path to safety. In the story, that means finding someone who can quickly show you the way out.

Even the process of making a purchase can sometimes feel overwhelming, like being in a burning building. There are so many choices, so many risks, so many different kinds of deals. You can feel like you are surrounded by smoke, unable to determine what is the best course of action.

If you want to make a sale, it can be useful to think of yourself as the experienced guide in a burning building, the one who gets the customer to the exit door (with purchased product in hand) as quickly and easily as possible.

THE PRINCIPLE
Today’s blog is based on some principles discovered in research by the Corporate Executive Board. As part of their recent research, the Corporate Executive Board looked at the selling process from the point of view of both the customer (most effective way to buy) and the sales force (the most effective way to sell).

After seeing the results, it occurred to me that the selling process is rather similar to the burning building story. In particular, the Corporate Executive Board came to two conclusions that are similar to the story.

1) It’s the Product, Not the Process
According to the Corporate Executive Board, “Customer effort is the most relevant indicator of loyalty in a customer service interaction.” In other words, customers are most loyal in their purchases to companies that minimize the effort customers must exert to get the product.

When comparing customers of High Customer Effort buying processes to Low Customer Effort buying process, the Low Customer Effort process customers were:

1) Far more likely to make a repeat purchase (94% vs. 4%)
2) Far more likely to increase their spending (88% vs. 4%)
3) Far less likely to spread bad word of mouth (1% vs. 81%)

The point here is that customers tend to make purchases not because the love the process of buying, but because they love the process of consuming. It’s the product they want, not the task of getting it.

Like in the story, what they really want is to get to the exit door as quickly and effortlessly as possible. The selling process is more like a burning building than a place where they want to hang out. The harder you make it to buy, the harder it will be to make a sale.

I am reminded of research I once heard about conducted by a disposable razor manufacturer. They found that when a customer bought a multi-pack of disposable razors, the number of days that the customer used the last razor in the pack tended to equal the number of days of use for all of the other razors in the multi-pack combined.

Was that last razor a lot more durable than the others in the pack? Of course not. The fact was that customers hated making the effort to go out and buy another multi-pack so much that they would put up with sub-standard performance of that last blade rather then make the next purchase.

The razor company concluded that if they could make the razor purchase completely effortless (like automatically shipping razors to the house on a routine schedule) they would sell a lot more razors.

As sellers, we may obsess about the selling process and look for ways to make it enjoyable. However, from the customer’s point of view, that process is like being trapped in a burning building—something to be avoided, or at least minimized. The customer in the burning building is not looking for a tour guide to turn the process into a leisurely, enjoyable vacation. They just want to get out.

As the Corporate Executive Board concludes, “Reduce customer effort—don’t focus on delight—in customer service interactions.” In other words, it’s the product, not the process, that the customer wants.

2) Be a Leader, Not a Friend
The Corporate Executive Board not only discovered that the “delightful transaction” approach is sub-optimal. They also found out that “relationship building” is a sub-optimal selling approach. Relationship builders tend to focus on reducing tension and creating a friendlier selling interaction. However, when you are in a burning building, you don’t want to make friends and reduce tension. Instead, you want someone who can help lead you out of that fire.

Therefore, it is not surprising that the Corporate Executive Board found the relationship building approach to be sub-optimal. Customers are not looking for friends, they are looking for product.

The better approach, according to the Corporate Executive Board, is the challenger approach. The challenger does three things:

a) Educates the customer about what best suits their need
b) Tailors the solution to the particular customer
c) Takes control of the process to make sure your goals are met.

You know, that sounds a lot like my leadership guide, the one who knows how to get you from the fire to the exit door quickly because they take charge in getting you what you need.

The leader takes the initiative, so that you don’t have to exert as much effort (reinforcing principle #1). They are also no-nonsense, realizing their job is not to eliminate the tension from being in the fire, but to eliminate the time in the fire.

SUMMARY
If you want a strategy to increase sales, consider these two principles from the Corporate Executive Board. First, focus on minimizing customer effort rather than maximizing customer delight. It’s the product, not the process that should get the focus. Second, be a leader rather than a friend. Show the way to the best path for that customer.

FINAL THOUGHTS
If you want to have a delightful time with a friend, do it on your own time, not when trying to sell your product.

Analogy #171: Super Job

THE STORY
Superman is a very busy guy. First of all, he has a full-time job working as a reporter under the name of Clark Kent. Second, he has a full-time job solving crimes as a superhero.

Having two full-time jobs like that doesn’t give Superman much time to do all of the other tasks involved in everyday living. And because he isn’t married, he doesn’t have someone to share those everyday duties with. So when does he have time to do all those mundane chores like cooking, cleaning, doing taxes, laundry, and so on?

So if there was anyone who could use help outsourcing some of his tasks, it would be Superman. But there is so little he can outsource.

It would be difficult to outsource any of the tasks which require his super powers. First of all, there aren’t very many people qualified to take on that task. Second, he couldn’t afford to pay for them on a reporter’s salary. Third, all the other people with super powers are already using them to fight crime. They, too, don’t have time to take on extra duties.

Superman would have difficulty outsourcing his job as a reporter as well. That’s his cover identity. In addition, it is a good source to learn about crimes needing a superhero’s help.

So the wise move for Superman would be to outsource those mundane tasks. However, what would life be like if he outsourced the crime fighting and did the mundane tasks himself? While Superman is at home doing laundry, he hires some person from a temp agency to go out and fight the crimes for him. Not exactly the type of drama that makes for good comic books.

THE ANALOGY
Outsourcing can be a very effective part of an overall business strategy. However, as we saw in the story, it is important to make sure you outsource only certain items. In general, it is wise to keep in-house those differentiating points of expertise in which you excel and which give you your strength.

On the flip side, most experts recommend outsourcing the more mundane things which are a less critical element of your success or which do not provide much of a differentiating advantage.

Using this logic, Superman should continue to do the crime fighting, for which his super powers give him a distinct and unique advantage. However, he could easily outsource some of the mundane tasks for which super-human powers do not provide much of an advantage, like doing the laundry

Although this sounds pretty obvious when applied to Superman, it can sometimes be less obvious for businesses. To apply this principle, you first have to understand your business success model well enough to know what your distinct expertise is. In other words, you need to know what your super powers are that give you an edge.

Not all companies think this through. This applies not only to the companies thinking about what to outsource. It applies to the outsourcing specialists who are looking to get some of that outsourcing. For example, what temp agency in its right mind would try to send crime fighting temps to Superman? To be an effective outsourcing specialist, you have to understand what it is that you do so well that people will be willing to outsource tasks to you.

THE PRINCIPLE
The principle here is that if you do not understand which areas are most appropriate for outsourcing, you can get in trouble. In this blog, we will look at an industry that is suffering, in part, because of this principle. The industry will look at is the advertising industry.

The advertising industry is long past its glory days of the 1950s and 1960s. Things have been a bit tough for the industry for awhile. Now it’s true that there are a lot of factors behind this problem. However, one of the problems is that advertising agencies and the companies that use them are not following the proper principles of outsourcing.

Advertising agencies are essentially placing where companies outsource a portion of their marketing. So the question here for the brand companies is how much marketing should be outsourced to the agencies. For the ad agencies, the question is how they can out-market their clients.

Back in the 1950s and 1960s, this was a relatively easy decision. It was the era of manufacturing. The manufacturers were experts in knowing how to manufacture something. That was their super power. Although they were masters in knowing how to make something, they were less skilled at knowing how to sell something.

That is where the ad agencies came in. They were experts in knowing how to sell something. It was the era of mass marketing, and the agencies were the masters of it. They could apply that skill to all sorts of products quite well.

Hence, it was a successful outsourcing arrangement. The manufacturers stuck to their superpowers of making things and outsourced to the marketing experts the art of selling what they made.

Now, let’s fast forward to today. Manufacturing is no longer much of a source of differential advantage. It doesn’t take the same level of super powers to run a factory. Lots of people all over the world can do it. In many cases, they can do it cheaper than the owners of the brands being manufactured. Therefore, manufacturing is now what is being outsourced to places like China and Vietnam.

So if the branded companies are outsourcing the manufacturing, what becomes the new differentiating super power? In many cases, the new differentiating factor becomes the ability to out-market the other brands competing in the same space. In other words, the new super power for branded companies is marketing.

So where does this put the advertising agencies? Their specialty now is not that dis-similar from the required super powers of their clients. For an owner of branded products today, it makes about as much sense to abdicate responsibility for marketing to an outsider as it would be for Superman to outsource his crime fighting.

Since both the agency and the client claim expertise in the same field (marketing), it is no surprise that there are more frequent and more contentious arguments between the two sides. The brand owners don’t value what they get from the agencies as much as before, since they are also experts in the field. The agencies feel like they are getting less respect than they used to and are tired of the higher churn rate in clients switching agencies.

In addition, mass marketing is losing out to niche marketing. Niche marketing tends to vary more depending on the particular niche. Therefore, the generalized marketing expertise at the agency may not be as effective as the specialized marketers at the brand company.

If advertising agencies want to see the “glory years” return, they have to stop competing with their clients and instead offer something which is more appropriate for the clients to outsource.

SUMMARY
A good outsourcing arrangement is when the client keeps in house the key differentiating super powers and outsources to the agency the less critical factors. Right now, the super powers of the ad agencies and their clients are too similar. Until that changes, there will be continued problems with this arrangement.

FINAL THOUGHTS
If manufacturing can be outsourced and marketing is the key for brands, why don’t the ad agencies become owners of branded products? In other words, why don’t they become their own clients?

Talk it Up

THE STORY
If someone tells you that they work in marketing, they really haven’t told you much. There are too many different types of careers which fall under the title of marketing.

For example, the person may be in personal selling or in a sales department and call that marketing. Or the person could be in advertising and call that marketing. Perhaps their position is in the field of brand management. That is often called marketing as well.

There are many other distinctly different job activities which often get classified as marketing as well. It can get very confusing. Are these people apprehensive or ashamed about telling people what they do? Does “marketing” make their job sound more glamorous?

When someone tells me they are a CMO, I’m sure to them it means Chief Marketing Officer. To me, it means Chief Mystery Officer—at least until I get to know them.

THE ANALOGY
There’s something about marketing that draws people to it, like bugs to a light. Not only do many people like to describe their job in terms of marketing, an even greater number like to talk about marketing and advertising, even if their job has nothing to do with it.

I don’t think I’ve ever worked for a company where there wasn’t a majority of executives who thought of themselves as “a bit of an expert” in advertising. And even if they didn’t think of themselves as experts, they always seemed to have an opinion about the quality of the company’s advertising and were willing to tell you all about it (even if you didn’t want to hear it).

Developing and implementing strategy tends to require a lot of talking across multiple areas of the business. Unfortunately, it is common these days for people to not be nearly as eager to talk about strategy as they are to talk about marketing and advertising. So if talking is a key part of strategic planning, and people would much rather talk about marketing/advertising than talk about strategy, then perhaps one should take advantage of the willingness of people to talk marketing and use that as a hook to begin a conversation which you can eventually steer to strategic issues.

THE PRINCIPLE
This is the second in an occasional series of blogs on “Stealth Strategy” (For the first blog, see "Minutes Last Forever"). The principle here is that many firms no longer show an interest in doing a formalized strategic planning process. They would rather spend time talking about and doing other things. If you overtly try to direct their attention to strategic issues, their radars will pick up on that and they will try to shut you down. Therefore, if you want to get a strategic dialogue going, you have to come in under the radar and get the discussion going in a stealthy manner. Advertising can be a tool to get in under the radar.

Since people love to talk about marketing and advertising, one can use that interest to strike up a conversation. Then, though a series of questions, one can turn a critique of advertising into an effective critique of the company’s strategy (without ever mentioning the word “strategy”). Although these discussions might not directly lead to a formalized change in strategy, they may lead to a change in the advertising message.

If you do your job properly, you may get the advertising message changed to talk about your product or company in a way that is more strategically sound. Then, once you’ve announced to the world this strategically sound message through advertising, it pretty much commits the company to delivering on that message. Therefore the company is compelled to operate the company around the strategic promise in the advertising. The end result is that people are acting on delivering an improved strategy, even though no formalized strategic planning process was used.

This is not that far-fetched. Most of marketing involves some form of communication with the customer in order to influence behavior which results in sales. Much of strategy involves developing a position for your firm/product which is desirable, unique and differentiating, followed by:

1) Building an infrastructure to deliver that position; and

2) Getting customers to believe that you own that position.

The goals of marketing and strategy are not that dissimilar. The most effective marketing message in the long run is a message based on a solid positioning in the marketplace. Good positioning is the best way to create profitable sales. Without a strong position, marketing must resort to deep price concessions or extra “goodies” to induce sales, which significantly reduces profitability. With a strong position, one is better able to create demand for your brand without these costly concessions.

Therefore, if you want to improve marketing, one needs to develop strong market positioning. Strong positions come from doing the work of strategy, even if you call it marketing. And then, once the position is developed under the guise of marketing, it is only a short leap to turn the discussion towards building the proper internal business capacities in order to deliver on the promise of the advertising.

Let’s take an example of how this could work. Let’s assume that you are walking down the hallway and you cross paths with a top level executive. The executive says to you, “Say, did you see our new ad on TV last night? I thought it stunk. What did you think?”

You could respond in many ways, depending upon your strategic agenda. For example, if you are trying to get a better strategic focus around who your customer should be, you could respond by saying, “The problem I had with the ad was that I couldn’t figure out who we were targeting that ad towards. Who do you think is the right type of customer to be targeting?”

If your goal is to create a unique position for the company, your response could be, “The problem I had with the ad was that you could have taken our name off of the ad and put any one of our competitor’s names into the ad and it still would have made sense. The ad did not give a compelling reason to choose us over any of those competitors. I think our ad needs to explain the ways in which we are uniquely superior. In what ways do you think we are uniquely superior, so that we can come up with a stronger advertising message?”

If your goal is to get the company to think about how the external trends are changing the landscape, requiring a need for a new strategy, you could respond something like this, “What was most disturbing to me was when I compared our ad to what others are doing. Their ads seem to be more in tune with where the trends are heading. Did you see the ad from company “X”? We normally don’t think of them as a competitor, but their ad is clearly changing the way people look at all kinds of options, including what we offer. If their ad gets people to look at the world in this new way, we could be in serious trouble. Don’t you think we ought to reassess our ad message in light of this?”

By now, you should be getting the idea. If you couch your strategic comments in an advertising context, they can appear less intimidating, and people may be more willing to talk about them. The talking can lead to changes in advertising which can be used to get complementary changes in the rest of the organization. For example, if you succeed in getting the advertising message to express the proper strategy, the next time someone asks you about your thoughts on the advertising, you can say,

“I love the message in the ad, but I’m afraid that our operations are not quite living up to the promise made in the ad. If we could just tweak a few operational issues, I believe the advertising message would be even more effective.”

If advertising is the subject that gets the talking going, then take your strategic ideas and “talk them up” in the context of advertising.

SUMMARY
Because some people have had bad experiences with formalized strategic planning in the past, there can be some barriers to getting companies to discuss strategy. Since strategy is closely related to marketing, and since it is common for executives to be more willing to talk about marketing than strategy, marketing can be used as a tool to get strategy implemented. Just talk up strategy in the context of advertising (and don’t mention the “S” word).

FINAL THOUGHTS
Sometimes, the first person one should be talking to is the CMO. If you can get the marketing team as your ally in this process, you can use formal marketing meetings as a platform for holding formal stealth strategy meetings.

Even a One-In-A-Million Idea Is Thought of by Over 5,000 People

The Story
When I was a teenager, I wanted to get a great view of the annual Fourth of July fireworks display. I spent several weeks trying to find the right location. Eventually, I happened upon a secluded location next to the railroad tracks. It looked like perfect spot. It was up on a hill above where most of the crowd would be, so the view would not be blocked. It was a difficult location to get to, so many people would not know about it. Even if they knew about it, they probably wouldn’t know how to get there.

This was a great location, I told myself. Only one in a thousand people would ever think of trying to see the fireworks from here.

I was excited about the prospects of seeing the fireworks perfectly without having to fight the crowds. I wouldn’t have to get to the fireworks park several hours in advance just to get a spot. I would just lazily ride my bicycle up the hill at the last minute to reach my special spot next to the railroad tracks. The cleverness of the idea made me feel proud.

However, on the night of the fireworks, when I got to my “special” spot, I found it already crowded with other people who wanted to see the fireworks. “My” spot was already taken. Then it occurred to me that the city I was in had a population of 100,000 people. So even if only one in a thousand people would think of this location, that still meant that 100 people would have thought of it besides me.

I ended up riding my bicycle down the hill to fight the majority of the crowds in the park for whatever spot was left—and had a bad location for seeing the fireworks.

The Analogy
In the story above, I was trying to find the ideal position for seeing the fireworks. In strategic planning, one is also trying to find the ideal position—the best position for his or her brand in minds of potential customers.

The ideal spot for seeing the fireworks was one that had the following characteristics:

• A desirable position (for getting a good view of the fireworks)
• An uncrowded position

The ideal spot for positioning a brand tends to have the same characteristics:

• A desirable position for your intended customers (providing a benefit your customers are looking for and willing to pay for)
• An uncrowded position, where only your brand is seen as the obvious choice in providing this benefit, thereby making your brand the one selected.
One of the key goals in strategic planning is to find such a desirable position for your brand as well as:
• A means for obtaining that position in the mind of the customer; and
• A means for defending that position from attack.

In the story above, I thought I had found a clever way to obtain my position to see the fireworks by following a narrow bicycle path up the hill. However, when I got up the hill, I found out that I had no way to defend the position. Anyone who knew how to climb or ride a bicycle could also take the same position. In fact, they had gotten there ahead of me, preventing me from taking that position. This left me having to look for an inferior location.

The same problem can occur in strategic planning. You may think you have found the ideal strategic position for your brand. Unfortunately, you are never able to hold that position because others are able to get there first and you cannot stop them. Either that, or there are so many brands fighting for the same position that none of you end up owning it.

In our cleverness, we may think we have found a great and unique position for our brand. Unfortunately, it is very difficult to come up with an idea so clever that no one else will have thought of it. Even a one-in-a-million idea on this planet will have been thought of by over 5,000 people. It takes more than a clever idea to win.

The Principle
Strategic planning needs to be more than just clever ideas or cute slogans. An advertising campaign may be a good way to communicate a position, but if that position is unattainable, unbelievable or undefendable, then it is nothing more than a clever phrase.

Good strategic positioning work goes beyond dreaming up mere superficial words. The true task of great strategic positioning is to build an entire system—including an infrastructure of competencies and capabilities—that make it possible for only your firm to win with that position. Ideas can be easily copied or stolen. Lots of people copied my idea of a position for viewing fireworks. However, copying an entire system for doing business in a particular manner is much more difficult.

Southwest Airlines did not succeed by just coming up with a clever idea to advertise lower prices. All other things being equal, “Low Price” is one of the easiest positions to copy. Instead, what Southwest Airlines did was create an entire system that resulted in a significantly lower cost of doing business. That system included such activities as:

• Using only one type of airplane, making repair and maintenance less costly.
• Limited Service: no seat assignments, no meals, no interline baggage checking, no premium service
• Simplified automated ticketing system
• Simple point-to-point flights, rather than complicated hub and spoke systems
• A different labor and compensation system

Unless you copied the entire system, you could not effectively compete with Southwest Airlines on price. However, even if an airline copied everything done in the Southwest system, they would end up alienating much of their largest and most profitable current customer base, the frequent business traveler. Hence, Southwest is successful because they built a unique system of competencies and capabilities that uniquely allows them the ability to hold a profitable position that others cannot effectively attack without:

• Having to totally reinvent their infrastructure (at great cost); and
• Having to lose much of their current profitable business.

Hence, it is not the cleverness of the positioning idea (low price) that made Southwest successful, it is the cleverness in building an entire strategic system that allowed only Southwest to effectively benefit from choosing that position. That is the difficult, but extremely valuable work of strategic planning

Strategic planning does not end after thinking up a clever position. That is just the starting point. The real work is in designing an entirely unique business system that makes your position achievable and defendable. If your position is based on having low prices, what can you do differently that others cannot effectively copy which will get you a meaningfully lower cost structure? This has to be something more than just doing the same thing that others do a little less expensively. To truly win at your position, you should be rewriting the entire thought process to create quantum leaps in cost savings.

For example, Michael Dell wanted to sell computers at a lower cost. Rather than copy the traditional system and try to do it a little better, he came up with a totally new way of doing business:

• Rather than selling through retail stores, he cut out the middleman and sold directly to customers.

• Rather than manufacturing a large inventory of machines to sell later (and have to cover the costs associated with holding that inventory), he got paid for each machine sold in advance and built the machines one at a time (no inventory). Not only did this allow him to save costs, it allowed him to build machines custom-designed for the customer, thereby increasing the value of the computer.

Hewlett Packard cannot match the cost savings of Dell on computers with their current system of selling through stores. However, if Hewlett Packard were to switch entirely to a direct model, they would alienate all of the retailers and resellers that currently account for all of their business, with no assurance that they would be able to replace all of that business by copying Dell, who already “owns” that position.

A similar approach can be used if your position revolves around higher service, better quality, or greater specialization/customization. To truly hold the position, one must do more than just tell people what your position is. One must also do more than just take a standard approach used by the industry and just execute it a little bit better than others. There is no guarantee that others will not be able to take that same approach and eventually do it a little bit better than you. Instead, you need to deconstruct the entire way you do business and then reconstruct it in a new way that creates a business system, which is meaningfully better and more defendable against competition.

Sometimes, instead of starting with the position and then developing the new system, it makes more sense to start by taking a look at who you are and what you’re uniquely good at. This might lead you towards finding a new system that only you can do. Based on the unique benefits of that system, it may dictate what is the best position to take.

Summary
One of the most important roles of strategic planning is to find the right way to position your brand in the minds of your potential customers. Finding the way to position your brand is more than just a coming up with a clever slogan. It involves developing all of the unique processes and competencies that are required to build the only business system that can effectively own and defend that position.

Clever positioning ideas are never as unique as one thinks and can be easily copied. Even a one-in-a-million idea will be discovered by over 5,000 people. On the other hand, clever integrated systems that synergistically support your position in a unique way are much harder to copy and much easier to defend. Building the integrated system that breaks all of the rules in your favor is the most challenging, but most rewarding part of strategic planning.

Final Thoughts
Over time, it has been shown that the advertising that wins the most rewards usually is not the advertising that is the most effective in selling products. Cleverness is not the same as effectiveness. In the end, the reward I want is a busy cash register.

Don't Confuse Coasting With Driving

The Story
There’s a frequently told story about the founder of Wrigley’s Chewing Gum that goes something like this:

Mr. Wrigley was on a business trip to California on the Super Chief express train, which at the time was the fastest way to move across the United States. Even so, it was a long trip, taking several days. After awhile, you run out of small talk to pass the time.

There was a traveling companion on board—a young accountant—that was bothered by one of Mr. Wrigley’s business practices. He had been afraid to mention it at the office for fear of being booted out. However, he felt relatively safe mentioning it here, since he figured that Mr. Wrigley wouldn’t throw him off the train. Besides, he had run out of other intelligent things to say. Heck, this might even impress the old man.

“Mr. Wrigley, sir,” he said, “Wrigley’s Gum is known and sold all over the world. We have a larger share of market than all of our competitors combined. Why don’t you save the millions of dollars you are spending on advertising and use it to increase our profits?”

Mr. Wrigley thought about this for a moment. Then he asked the accountant this question: “Young man, how fast do you think this train is going?”

“About 60 miles an hour,” replied the young accountant.

“Well then,” said Mr. Wrigley, “Why don’t we ask the railroad to unhitch the engine and let the train travel on its own momentum?”

The Analogy
Companies are like trains, moving down the tracks to their future. It takes investments in engines and fuel to keep that train moving down the track. Similarly, it takes investments in the engines of your company’s growth in order to continue moving down the track to a prosperous future.

Once a train gets up to a high speed, it could probably coast for quite awhile before you would notice that the engine had been unhitched. In the same way, your company could probably coast for a long time on the investments of the past, before you would notice that you are unhitched from any investments in future growth. You might even be enjoying the ride more, because of the money you are saving on fuel.

By the time you become aware that you are coasting, the train has already slowed quite a bit. It will take a long time to find another engine and gain back your momentum. During this time, your competition will have caught up with you and even passed by you on a neighboring track. You might never catch up again.
Strategic Planning serves two goals to help prevent this situation:

1. It watches the current conditions to make sure you have an engine still creating value and are not coasting off old investments that are slowing down.

2. It looks ahead to help make sure you are hitched to the proper engine of future growth and that you are properly providing the right amount of fuel for that engine.

The Principle
Strategic planning assumes that the environment is always changing. As a result, any strategic initiative—no matter how excellent—that remains unaltered will eventually fall out of favor or become less effective. There are many environmental factors that can change, causing a strategic initiative to fall out of favor:

1. Changing Customer Needs or Desires
2. Technological Innovation
3. New Competition
4. Changing Economy
5. New Government Regulations
6. Strategy Copied by Competition, Eliminating its Uniqueness
7. Patent Expires
8. Competition Finds a Better Way to Counter Your Strategy by Adjusting their Position
9. Changing Market Demographics
10. Customers Become More Experienced With Product
11. Product or Service is Commoditized
12. Product or Service Goes out of Fashion

Because of these changes, a company can only coast so long on a particular strategic initiative created in the past. Eventually, the initiative needs to be modified or replaced. As a result, those who think strategically are always looking for how to invest resources in new engines in order to stay in front of the change and take advantage of it, rather than fall victim to it.

Unfortunately, it is easy to get comfortable living off the investments of the past. Coasting feels a lot like driving, and it costs less because you don’t use any fuel. However, coasting is not the same thing as driving, even if you are sitting in the driver’s seat.

Similarly, just because someone is sitting in the leader’s chair does not mean they are truly leading. That person may just be watching the forward momentum left over from the leadership of the predecessor. Instead of leading the company into the future, that person is coasting off the efforts of the prior leader, who is already unhitched from your train. Eventually the coasting will come to a stop.

True leadership requires three elements:

1. The wisdom to discern which new destination to drive the company towards (Where am I leading towards?).

2. The ability to entice people to follow and help accomplish the journey (Who I am leading?).

3. The strength to invest in engines and tracks that will take you towards your destination (How I will get there?).

Strategic planning is a useful tool in turning mangers into true leaders, because it focuses thinking on these very issues.

Without strategic thinking, instead of becoming a leader, one typically becomes a liquidator. That is because without strategic thinking, one tends to assume that what is happening today will continue to happen for a long, long time. The annual cash flows from old investments are considered to be a constant over the planning horizon. If the cash flows are a constant, than why spend additional money? We can coast off the momentum of the old investments. If the train starts slowing down, we can always get rid of excess weight by selling off the engine and excess train cars. Unfortunately, before you know it, to keep moving, you’ve sold off the entire train.

This type of person thinks like Mr. Wrigley’s accountant. He believed that the advertising investments of the past were good enough to keep Wrigley’s gum in a leadership position forever. Hence, it made sense to him to cut out all future advertising expenditures.

A company that stops spending on building the future is like a railroad that sells off all of its engines. In the near term, it will be more profitable and it will continue to coast for awhile. Eventually, though, the train will stop, because you have liquidated its most important asset—the engine. The mistaken assumption that a train will coast forever without an engine will lead to ultimate failure.

Now most people might agree that you cannot coast forever, but what about coasting for a little while? Two times are often brought up as good for coasting—very, very good financial times and very, very bad times. During the good times, the thought is that serious threats are not near, so one can afford to coast on current successes. During the bad times, the thought is that one cannot afford to invest in the future, because all of the money is needed to save today.

While it’s true that the amount invested in the future can vary depending on the situation, it is dangerous to turn it off completely. For example, during bad times, investments in the future tend to be the least expensive. Studies by several consulting firms have found that companies that invest during economic downturns are best positioned to take advantage of the next economic up-cycle.

Similarly, it is easiest to strengthen one’s position when you are already starting from a position of strength. If you wait until your current business model starts to fail before you begin, you have two problems:

• You have to overcome the weaknesses that are already entering your brand position;

• It takes time to determine where to invest in the future and time for those investments to pay off. By the time all of that is done, your brand will have eroded even more. Competitors may have the time to pass you by.

Summary
There is a difference between managing a business and leading a business. True leaders understand that all strategic initiatives eventually fail, so they keep spending on building engines for future growth so that the profit train never stops.

Final Thoughts
I used to live in a city that had a severe shortage of doctors. Most doctors were not accepting new patients. It took me years to find a doctor that would take me as on as a patient. I asked this doctor why he was not like the others and was willing to take on new patients. His answer was, “People die. You have to replace them.”

Strategic initiatives die as well. Invest in the process to replace them before the current initiative coasts to a stop.