How to make sure your company’s next strategy succeeds

This fabulous article by Charles Roxburgh is a must read for every decision maker responsible for deciding the fate of a proposed strategy. It explores in fascinating detail how the brain tricks leaders into making “rational” decisions that are nothing of the sort. In fact, it reveals that all of us work to a set of biases that we must consciously resist.

While my recent post on Prussian cast iron medals addressed how behavioural economics can work to actively lift value and change perceptions for buyers, Roxburgh’s work is a sobering reminder that rogue decision making is alive and well. Much of what he describes in terms of European financial services is equally applicable to what happens in many other fields. In this post, I highlight Roxburgh’s key observations, his recommendations on how to address them, and the steps I look to take as a strategist to ensure that what I’m doing gets the fairest hearing it can from the decision makers I’m working with.

Settle in please for a longer-than-usual riff on how decision makers can fight the forces of human nature and lift the chances of strategic success:

1. Read the forecasts for any strategy’s outcomes with care. The chances of failure are much higher than we like to give them credit for. Optimism is built into our DNA as human beings, which is vital for creativity, but unless carefully controlled it tends to see even the most careful strategist inserting unrealistic stretch into plans in the sincere belief that such extremes can be achieved.

Roxburgh suggests:

• Avoid presuming certainty or success.
• Stress-test strategies under a range of two or four scenarios.
• Add 20 to 25 percent more downside to the most pessimistic scenario and see what floats.
• Build flexibility and options into your strategy to enable responsiveness either up or down.

What I also try and do:

Quantify the problem honestly even before you look for answers. Not just how big is the problem, but what are the implications of the problem and have they been addressed. Regular readers will know that I’m a huge believer in the Stockdale Paradox. To that end, I look to maximise the extent and gravity of a problem whilst always believing that there is a viable and positive answer. Being brutally frank about what needs to be tackled can make for some tense conversations and the optimists in the room will quickly label you as a pain the butt, but it’s absolutely vital to avoid drinking in the fairy dust.

It also tells you something that so often gets lost: how big the answer really needs to be based on what’s being tackled, not how big it’s allowed to be based on the budget that’s been assigned.

2. Invest money where it counts, not where it feels good. Richard Thaler’s principle of ‘mental accounting’ is that decision makers subconciously assign various levels of sexiness to different budgets and Roxburgh gives some great example of this in the article.

Roxburgh suggests:

• Judge every call for investment consistently.
• Don’t allow money to be reclassified so that it is then acceptable to spend.
• Remember every dollar is worth a dollar, no matter what it’s spent on.

What I also try and do:

Keep the resources and the problem in the same frame the whole time. Make sure money is spent on the actual problem, and that the problem doesn’t become a reason for money to be spent on something everyone would prefer to be involved with. The very real temptation here is to pin the strategy on the problem: to assign an answer that everyone would like to see happen (and its accompanying resources) to a problem no-one wants to tackle head-on, in the belief that doing so will fix the problem or at least make it more palatable to deal with.

3. Recognise that status quo bias means people would rather ignore what’s really going on. Roxburgh explains that people would rather leave things as they are, that they are more concerned about the risk of loss than they are excited by the prospect of gain and that they often exhibit a strong desire to hang on to what they own because the very fact of owning makes whatever it is more valuable to the owner.

The results of this bias, according to Roxburgh, are that decision makers are reluctant to make big calls. “The challenge for strategists,” he observes, “is to distinguish between a status quo option that is genuinely the right course and one that feels deceptively safe because of an innate bias.”

Roxburgh suggests:

• Be prepared to shed. View divestment not as a failure but as a healthy renewal of the corporate portfolio.
• Be as rigorous in your analysis of what stays as what you want to change.

What I also try and do:

Know what you’re keeping and what you’re changing – and why. For me there are four key things to identify in discussions with decision makers around any strategic change programme:

• What must we keep?
• What could we keep?
• What could we change?
• What must we change?

Start with what must stay. In my world, for example, you absolutely want to retain the intrinsic goodness of a brand at every level, from goodwill to heritage to culture, and that’s usually where I start – with what a brand must keep in order to retain competitive value. For me, this more conservative approach of moving from the known to the unknown does give people anchors. It allows decision makers to use status quo bias to their advantage because a clear rationale for why some things are staying leads onto the tougher questions of what must be left behind.

4. Know that there’s no such thing as the foreseeable future. Anyone whose read “Black Swan” will understand the dangers that past patterns present in terms of predicting the future. However anchoring is a powerful human trait. It causes us to look ahead based on what we’ve already seen. Companies do this all the time in their expectations around performance. “What you did last year – plus X percent.” So often those numbers are arrived at with little or no context in terms of market dynamics. As Roxburgh says, and as readers of Nicholas Taleb will know, “Repeated studies have failed to show any statistical correlation between good past performance and future performance.”

Roxburgh suggests:

• Continually question every assumption about where a market is heading
• Don’t allow yourself to be swayed by “industry consensus”
• If you are going to look at patterns, take a long historical perspective. Put trends in the context of the past 20 or 30 years, not the past 2 or 3.

What I also try and do:

Pinpoint the assumptions. Sounds straight-forward. Isn’t. If it’s difficult to know what we don’t know, it’s equally challenging to establish what we don’t question. Sometimes conventions and assumptions are so ingrained in ways of working that people fail to recognise them as fallible or even negotiable.

Look long for patterns – but judge how long by the dynamics of the sector. Some sectors evolve faster than others, meaning some have longer turn times while others shift gear much more quickly. What feels like a responsible timeframe to analyse trends in the finance markets (Roxburgh’s reference point) could be ridiculous in a sector like technology (which isn’t even 30 years old yet as a consumer sector).

5. Know where the exit is, and know when to leave. The sunk-cost effect sees companies continuing to throw money at a problem, long after it has passed economic viability, in a bid to salvage their investment and miraculously turn things around. No-one likes to admit they got it wrong, but knowing when to do so, and doing so decisively, is critical not just to saving resources but having resources available to adequately fund what replaces it.

I watch in despair as companies make “strategic” decisions to continue investing in products that have no hope of recouping that investment, never mind making a profit, because no-one is prepared to pull the plug. When the idea does fail, the blame somehow falls on “market conditions” and everyone puts on their best game face.

According to Roxburgh, sunk cost effect can be explained by loss aversion (companies would rather spend more than write off everything to date) and on anchoring (once the brain has been anchored to a budget, the additional budget doesn’t seem unreasonable).

He suggests:

• Kill what can’t work – and do so as early as is reasonable.
• Pursue several strategic options – taking a portfolio approach to your strategy allows you to go with what works and ditch what doesn’t rather than relying on one master plan.
• Gate fund as a stop-loss mechanism – release follow-on funding for a strategy only once agreed targets are met.

What I also try and do:

Have a strong, future-set brand story. Set a very clear vision for what a brand will feel like and be acting like when the strategy succeeds. I do that through the formation of a brand story that looks ahead to how the brand should be three years from now. I have found such a document keeps everyone very focused on the outcome and quickly shows when things are going off-track from a perceptive/receptive point of view.

Back up the story with clear numbers. At Audacity, we look to put a measurement framework in place that quantifies the story in terms of how things should track across a range of agreed metrics. Doing this enables decision makers to plot how a brand is progressing and to take corrective actions if things go off-kilter.

The story plots sentiment. The measurement framework plots numbers.

6. Resist the urge to herd. This idea is little short of comfort-food for marketing decision makers, so we won’t dwell on this one. But Roxburgh makes one point here that is well worth noting: “Some actions may be necessary to match the competition … But these are not unique sources of strategic advantage, and finding such sources is what strategy is all about.”

I think a worrying mistake that decision makers make is that they assume that once they have signed off the strategy, it will deliver advantage for the foreseeable future. Not true of course. As VJ Govindarajan has pointed out many times, a strategy’s effectiveness starts to fade the moment it is created. Why? Because once it is made public, and proven to be successful, the herd will inevitably adopt. The strategies of today are the hygiene factors of tomorrow – and the transition time from distinctive to indistinguishable continues to shorten.

What I also try and do:

Find ways to distinctualise your brand that then force others to play by your rules. The company that drives successful change in a market decides successful change in a market. In the strategy, look for ways to define the market atmosphere that work in your favour, and that actively work against a competitor trying to do the same thing. My friend Keith Rushbrook has a great question that he asks a strategy team to get them to that point, “What can we be or do that our competitors can’t be or do, and if they try, that’ll work to our advantage?”

Apple is a past master at entering a market after the initial forays, changing the rules, and then getting everyone else to play catch-up. As I’ve said elsewhere, “The most powerful brand you can own and manage is one where you know and write the code – not one that takes its cues from where others are, or where you perceive them to be.” Conversely, if you are the brand that everyone takes its cues from, you get to play to your strengths and your agenda, and your competitors can only follow.

7. Less will change than you expect. Humans misestimate future hedonic states. In other words, people are bad at estimating how much pleasure or pain they will feel if their circumstances change dramatically. Roxburgh says that people adjust surprisingly quickly even to major change, and that their level of pleasure (hedonic state) ends up, broadly, where it was before. Even acts that at the time seem revolutionary and highly disruptive emotionally will soon become the new normal.

Equally, within a culture, ideas that trigger predictions that they will generate huge difference to the company or to its culture seldom have as big an impact as predicted. Outrageous is often just a synonym for ‘too early’. If everything else is right, the concern that ‘our people will find it hard to adjust’ has been proven time and again to be incorrect. Yes, people will have misgivings – initially anyway – but they will soon adapt to what’s required.

Roxburgh suggests:

• Keep things in perspective.
• Navigate the inevitable swings in emotion and morale as people adjust to change.

8. Remember that the strategist’s role is to counter-balance the consensus bias. Let them do that. But then challenge them back. Roxburgh says people tend to overestimate the extent to which others share their views, beliefs, and experiences. He gives four examples of the false-consensus effect:

• Confirmation bias – the tendency to seek out opinions and facts that support our own beliefs and hypotheses
• Selective recall – remembering only facts and experiences that reinforce our assumptions
• Biased evaluation – accepting evidence that supports personal hypotheses, while rejecting  contradictory evidence.
• Groupthink – simply agreeing with those around us

By way of examples, he quotes classic lines one might hear from a CEO working from a false consensus basis:

• “the executive team is 100 percent behind the new strategy” (groupthink)
• “the chairman and the board are fully supportive and they all agree with our strategy” (false consensus)
• “I’ve heard only good things from dealers and customers about our new product range” (selective recall)

False consensus is pernicious, says Roxburgh, because it can lead strategists to miss important threats and to persist with doomed strategies.

He suggests:

• Put all ideas up for review. Create a culture of open challenge and constructive debate within management teams where reviews are welcomed as helpful, not hostile, acts.
• Seek out and debate contrary views so that they have been considered. Even establish a “challenger team” to identify the flaws.

Final thoughts

I agree wholeheartedly. Whilst it may be hard for strategists to have the ideas they have worked on so hard picked apart by colleagues, it’s much more dangerous to leave ideas unlitigated. Debate is healthy providing it remains focused on the business outcomes and everyone is committed to finding real answers and not simply looking to issue ‘restraining orders’.

To close, a thought for strategists taking part in these processes. It’s never easy being the ideas person. It requires sustained energy and confidence, and you won’t get everything right all of the time, but then, as Roxburgh shows, neither will those around you.

Lessons from an unnoticed violinist

Violinist Joshua Bell following a performance at the San Francisco Symphony in California. (Photo credit: Wikipedia)

I’ve always loved the story of Joshua Bell playing the Bach pieces largely unnoticed in the Washington metro station. Please watch the video if you don’t know the story. And while the experiment does indeed confirm that we don’t take the time to appreciate as much as we should, more particularly, it’s also a poignant example of the contributions of context and information to our everyday decision making.

Context provides so much of how we read situations. No-one expects to see a concert violinist playing at a station – and because no-one expects it, no-one notices what he is doing, regardless of the extraordinary quality, and even fewer reward it. In that setting, in the blink of an eye that people evaluate, he’s just another musician, just another busker. If he was that good, many people would have subconsciously thought, he wouldn’t be playing here. So if he had played in another setting, even if it wasn’t a concert hall, would that have given his performance greater credibility for those passing by? Quite possibly.

There’s always competition. Whether you win or not depends on your ability to flourish in the prevalent operating conditions. In a concert hall, Mr Bell stands head and shoulders above most. In that context, he is at the top of his game. But in the context of a metro station, Mr Bell was uncompetitive. That is absolutely no reflection on his immense talents. The operating environment in a metro station is centred around time. The driving dynamic is rush. Mr Bell’s requirement that in order to appreciate what he was playing one had to pause for a moment and pay attention was incompatible with the environment and with the dynamic of that particular environment at that time of day. The destinational impulse of commuters completely overrode their cultural impulse. One could well say that was to their cost – but in reality, most clearly didn’t care.

What you make is actually less important than what you market. I wonder if it would have made any difference if Mr Bell had played alongside a sign that provided his credentials? Because then the perceptive dynamic would have changed markedly – from “another busker” to “free concert by an international musician”. Without information, without “marketing” most people, most companies and most brands are just anyone to everyone else. Mr Bell makes some of the sweetest and most skilfully played music in the world, but until people can see why someone like him deserves attention, he won’t gain most people’s interest or time. Today, everyone, including consumers, starts with “No”. It’s their fastest and simplest filter.

For every marketer who has felt like Mr Bell must have felt that day, three questions to ponder on:

1. Does the context in which people see what you offer provide the right signals – or does it telegraph all the wrong things about you?

2. What is the most powerful dynamic for buyers in your sector – and how are you addressing that in ways that make you the best answer?

3. In your marketing communications, have you really told people what they need to hear in order to say “yes” to you?

From Prussia with love

Jeremy referred me to this fabulous presentation by Rory Sutherland, and it’s another corker from the man from Ogilvy’s. Mr Sutherland would absolutely make my short list of people to sit next to at dinner. Not only is he an adamant supporter of one of my favourite disciplines, behavioural economics, but his talks are peppered with the most wonderful references and observations.

In this speech, he gives a wonderful example of how physical value can be transformed into an intangible value that defies costs, but only if the associations are powerful and valued enough. Examples abound of this dynamic working the other way (items being sold for, or even below cost) but the Prussian medal example Sutherland gives is proof that cast iron can indeed be worth more than gold if the story that surrounds the lesser metal gives it greater value, and providing of course that those seeing the cast iron medal also understand the context of why it carries the value it does.

Sutherland goes on to direct this argument at the environmental movement. The secret to changing how people drive, he suggests, is not to get them to drive less but to encourage them to revalue in sufficient numbers what they drive. In other words, make it feel worth more, status-wise, amongst the driving population to rent a small car than drive a big car – even though the bigger car has intrinsically more value.

The science of the age, he suggests is getting to grips with how and why people behave the ways they do, because the only ways to bring about meaningful change are to provide people with reasons that make sense for them. Those last two words here are key. The reasons don’t have to make sense logically – but they absolutely must make sense behaviourally. They must compel a different way of acting.

And while everyone loves to think big, Sutherland continues, more and more as marketers we should dare to be trivial, because “quite a lot of human behaviour is predicated on very small signals”. The examples he gives of the $300 million website button and the carmaker trade-in arrangement that reaped another 20,000 sales reveal why there is value beyond all proportion in being able to identify and transmit those signals.

Key take-outs for me:

In order to change the value, you must change the context within which that value is judged. In the case of the Prussians, post-war gold was worth less than post-war cast iron because of what a cast iron medal had come to represent.

Value is aligned to mass. Enough people must agree between themselves that the value has changed in order for that idea to take hold and gain recognition.

Together context and perceived value can ‘rationalise’ a change in how an item is viewed even if the item itself hasn’t altered. When that change is downward, of course, we refer to it as commoditisation. What Sutherland shows is that it can also work in reverse, if, if there is enough critical mass.

Behaviours are prompted by signals. The bigger the change in behaviour, the more human, and therefore “trivial”, the signal should be. The value that such signals can generate has the potential to be completely out of proportion to what appears to have changed.

Sutherland’s talk prompts me to hypothesise that any discussion around changing perceived value should probably hinge on three questions:

1. What’s the context that we need to change?

2. What do we want people to say to each other in order to change the value?

3. What’s the smallest and simplest behavioural signal we can identify to trigger this change?

More reading

The strategy of radical beauty
The death of demographics. Does it matter?
Maintaining brand loyalty: 4 ways brands get it wrong
Brand dynamics: the shapeshifting of brand likeability

Further perspectives

• Rory Sutherland: Life lessons from an ad man (ritholtz.com)
• 20 Speeches on Sentimental Branding – From Selling a Lifestyle to The Value of Experience (TrendHunter.com) (trendhunter.com)
• Great animation showcasing some of ad legend Rory Sutherland’s ideas (itsnicethat.com)
• Diamonds are forever, but iron is for eternal status

Sustainability: Being good, not just doing good

Historically, corporate social responsibility has put the emphasis on how businesses are doing good. It’s become an increasingly varied checklist of “things we’ve done right”. Today though, socially aware audiences want more. They increasingly make judgments about you based on your overall likeability. They want to do business with brands that are good.

And that in turn means that, at a social level, your reputation depends less on your ability to simply highlight good works done in isolation (through community activities or sponsorships for example), and much more on your ability to show that you are inherently principled in your dealings and that you behave consistently across your organisation in ways that align with your social and commercial reputation.

That shift in the significance of social actions has a downstream effect on critical social initiatives such as sustainability. In my opinion, they should no longer be seen as nice-to-haves or even as opportunities to improve efficiencies across your supply chain. Rather, the actions you take in these areas are competitive opportunities to distinguish your company from others. Your social actions help define and demonstrate your ‘moral compass’ – and in positioning you as transparent, consistent, reliable and principled, they add value to dealing with you. They also help swing the dialogue, and therefore the consideration set, away from just price.

People like good brands. They trust them. They believe them. They see value in them. They see them as the counter to unethical behaviours. Subconciously, they look for opportunities to favour them. For those reasons, good brands carry lower “social risk”. They are less likely to draw adverse reaction, less likely to make the news for all the wrong reasons, much less likely to have their actions and motivations questioned.

But – and it’s a very important but – your social actions will only work to reinforce your standing as a business that is good to do business with if they are communicated in ways that directly link how you act with what customers can expect. With sustainability now treated virtually as a compliance matter in so many B2B exchanges, and expected by customers as part of how business is now done, the temptation, as I alluded to earlier, is to rattle off a list of “social” achievements and consider the boxes ticked. That in my view is an opportunity wasted. Rather than treating your sustainability actions as a list of initiatives, I suggest you look to present what you are doing as intrinsic social proof for why you deserve preference; for why you’ve earned the status of “a good brand” amongst the people who buy from you.

Take a food company with a sincere commitment to deep traceability in its supply chain. The temptation is to report on where ingredients were sourced and perhaps to elaborate on what standards were met. Such a description explains how the company approaches sustainability but does not do full justice to its actions. The real opportunity lies in explaining why the business went looking for such alternative sourcing in the first place and how that commitment aligns with their wider motivations to do the right thing. In other words, if you are that food company, don’t just tell your customers that you buy ethically. Tell them why you buy ethically, why your ethical stance is unique, how that aligns with the real actions that need to be taken, and what that says about your brand more broadly. Traceability should be aligned with the business’s worldview.

Two thoughts to close:

1. If you are investing in social actions such as traceability, diversity and sustainability, do so because they fit with who you are, and be proud of that. Make them an intrinsic expression of your DNA, not just something you do to fit in alongside everyone else.

2. If you’re concerned that you haven’t taken full competitive advantage of these actions, try testing the market effectiveness of your actions with some searching lines of enquiry. In the case of your sustainability story, consider this question, asked from the point of view of your customers: “When we bought from you – what changed in the world, how did you make that happen, why does that matter to me, and why will buying from you ensure things continue to improve?”

Your responses, told well, can certainly form part of the proof that you are better, in every sense, than your competitors.

More reading

Time to rethink the business model of some NGO brands?
The portfolio approach to strategy
The power of being purposeful

Other perspectives

• Why measuring impact is essential to any social enterprise (socialenterprise.guardian.co.uk)
• Sustainability Is the Foundation of ‘Capitalism 2.0′ (environmentalleader.com)
• Q&A: Kate Cox – Head of Strategy, Havas Media (sustainablebrands.com)
• Brent Schulkin: What the Marshmallow Experiment Teaches Us About Corporate Sustainability (huffingtonpost.com)

The strategy of radical beauty

Should you climb a mountain because it’s there, or because you believe you have a more than reasonable chance of conquering it? In a commercial setting at least, I’ll plumb for B – because presence alone is not a rational reason to participate. I continue to be intrigued though by the human instinct to believe that the odds are there for beating. I watch brands plunge into markets where they honestly believe they can do what others have failed to do for no other reason than that they believe in themselves and/or they have little respect for the current participants.

Believing in your own brilliance and/or relying on the incompetence of others however, as Michael Porter reminds us, is not a strategy. In fact, it’s nothing short of a gamble.

In a wonderful article on “How strategists lead”, Professor Cynthia Montgomery of the Harvard Business School gives a telling example of how some great companies have fancied their chances in the furniture manufacturing sector, only to become a cropper. They have, she says, looked to invest in a sector which, on analysis, has deep fragmentation, poor marketing, low brand awareness, high competition, high transportation costs, low productivity, eroding prices, fast imitation, slow growth and low returns.

Tellingly, all the companies cited in her article entered the sector believing they could change it, and all have since left.

Professor Montgomery’s point? That “the competitive forces at work in your industry determine some (and perhaps much) of your company’s performance”. In other words, if you fail as a brand to truly appreciate the forces working against you, you essentially fail to account for how and why you will beat them at their own game. In the case of the furniture manufacturing sector, what Montgomery’s analysis shows is there is no money to be had in this sector. It’s inherently unprofitable, so “The strategist must understand such forces, how they affect the playing field where competition takes place, and the likelihood that his or her plan has what it takes to flourish in those circumstances.”

Critical word here – flourish. As in out-perform, not just participate in, or even improve on. Without a deliberate and measured plan to actually redefine how business can be done profitably in a sector, brands are in effect simply adding their roll-call of products to an already crowded beauty parade in what may well be an “unhelpful” competitive environment. What’s missing, as Montgomery so rightly points out, is “a brutally frank and open confrontation of the facts”. You can’t win in the furniture manufacturing sector by simply being another furniture manufacturer. Unless you are prepared to turn all the rules on their head, as IKEA did, the incumbent market forces will inherently work against you.

The role of the strategist is to find “radical beauty” – an idea/product/approach/model that fulfils everything customers are really looking for and at the same time is sufficiently distanced from the status quo to defy conventional sector limitations.

The global coffee market doesn’t need another coffee brand. The global airline industry doesn’t need another airline. The world doesn’t need any more ad agencies. Unless you actively plan to bring something radically beautiful to those markets that others haven’t brought and can’t instantly bring (at the first sign of your success), stay off the mountain.

More reading

Crunching on cacti
Not a problem: success pivots on what you solve, not just what you know
Brand dynamics: the shapeshifting of brand likeability
Twinkle, twinkle, twinkle …
The business of cloning
You can’t lead as a brand if you follow another brand
Great brands unearth

Additional perspectives

Time looks at whether Virgin America’s strategy is right for the times. Virgin America: Why an Airline that Travelers Love is Failing

Crunching on cacti

An airbrushed problem is not an easier problem to solve. In many ways, it’s actually much more difficult because the nature and extent of the problem itself is encoded in euphemisms, which usually means that the potential impact is also encrypted.

I call these deflections and understatements “icing the cactus”. Generally, they involve playing up the momentary nature of what has happened (“unseasonal”, “untimely”), playing down the likely effects (with words like “blimp” and “unfortunate”) and playing off one action or group against another (“there’s no doubt it would have worked if …”)

Personally, I’ve always held with the Stockdale paradox: that organisations need to present issues frankly and without blinking, at the same time as they must utterly believe in their ability to be resolved. You can’t fully solve what you don’t fully know, and therefore what you are prepared to fully admit to.

Actually, problem solving itself is a misnomer – because the problem itself is seldom the problem. The real problems are usually the attitudes, mindsets, blindsides, denials, assumptions and stupidities that created the problem. That’s why people apply icing – to avoid admitting the connection between what was decided and the extent of the damage that was subsequently generated. They don’t want the search for an answer to turn into their search for a job.

If I’m running such a session, I generally open with three statements:
• Great companies make mistakes – because otherwise they wouldn’t be ambitious enough.
• Greater companies admit mistakes – because otherwise they wouldn’t be trustworthy enough.
• And the best companies hunt for mistakes – because otherwise they won’t improve enough.

Sessions like this are uncomfortable, awkward, emotional and vital. If you run the session right, everyone will emerge with an uncensored understanding of what went wrong, and, with guidance, they can draw on that to clearly and fully think through what to do next.

At times though, it really will feel like you are crunching on a cactus with your bare teeth. So, if you’re the one charged with fixing whatever’s really happened, here’s a little thought I call on to keep me persevering when everyone else doesn’t want to know or is playing with the truth: Keep going, because if you leave enough icing on the cactus, every prick will hide.

More reading

The great customer vanishing act: what happens when you can’t track them?
Not a problem: success pivots on what you solve, not just what you know
Brand dynamics: the shapeshifting of brand likeability
Twinkle, twinkle, twinkle …
The business of cloning
Always be branding
You can’t lead as a brand if you follow another brand
Great brands unearth
Is your brand ready for the experience war?
Brands at the speed of life

Story myths

Great brands have great stories. But a great story doesn’t automatically create a great brand. For years we’ve told ourselves a story about what story is and how it works: develop a product; build a story around that product to give it value; sell that product at a greater degree of profit. We’ve allowed ourselves to believe that stories are the lynchpin of competition and that the best storytellers will win.

But that in itself is a myth.

Ultimately consumers don’t buy a story. They listen to a story. They are influenced by a story. But what they buy is a truth that directs their behaviour, captured in a story.

You don’t succeed just because you have a story. You succeed when you have a story that inspires people to buy your brand. The most beautiful, uplifting story in the world won’t cut it commercially if it doesn’t achieve competitive connection – if it doesn’t provide customers with reasons to connect with your brand at the expense of someone else’s.

Stories may influence behaviours. But only when powerful and distinctive motives drive the stories. In other words, only when, as Rajant Meshram says, it has “ground truth”. And only when the experience customers receive then lives up to the story they allowed themselves to buy into.

Otherwise, it’s a fairy tale.

More reading

Handpicked – the wider opportunity of curation
Not a problem: success pivots on what you solve, not just what you know
Affirmation: how to make a brand experience really count
Is your brand ready for the experience war

Other perspectives

• This is well worth a read. Fight Club, Cinderella, and What Storytelling Means for Brands (postadvertising.com)

Reporting season

Excuse the extended silence. Reporting season is an all consuming time of year for me. In addition to actually writing a number of annual reports, I do a lot of travelling and lots of meetings with senior managers.

I look forward to it every year.

People are often perplexed. You’re into brands, they say. Why do you want to write annual reports? They position this as if it’s an either/or. I’ve never seen it that way. After all, what are brands for if not to generate profits for investors?

Their question also implies annual reports are just a writing exercise. Again, I’ve never seen them that way.

To me, annual reports are cues to sit down with decision makers one on one and quizz them in detail about what they did, why, what happened and what it all means at year end. I get to understand something of how the business worked over the last 12 months. And I get to hear the stories from the inside. It’s a chance to talk through the dynamics of a sector, the impacts that companies are watching, what their plans are, the tension points … In fact, it’s a huge opportunity to get multi-disciplinary views of the market and the entity from the actual people in charge of bringing home the results.

Here are 6 things I noticed companies seemed keen to talk about this year:

Margin
Justifying capital expenditure in challenging economic times
Shareholder returns (particularly dividends/distributions)
Investment grade rating
Contribution to the wider community and indeed the national economy
Diversity as a CSR metric

Market leadership: why innovation needs to engage, not just impress

Blair points me in the direction of Booz & Company’s 2011 Global Innovation 1000 for some interesting insights as to why innovation works for some and not for others. (Thanks Blair.)

According to Booz & Co, innovation spending increased in 2011 to $1.15 trillion globally. The 1000 companies that Booz & Co surveyed represented almost half this spend and in the last year their innovation spend was up 9% on the previous year.

However, what interested me was the news that the companies that spent the most were not necessarily those that got the most out of their innovation investment. In fact, the top 10 innovators (Apple, Google, 3M, GE, Microsoft, IBM, Samsung, P&G, Toyota and Facebook) out-performed the top 10 spenders in three key metrics: revenue growth; EBITDA and market capitalisation.

So innovation can work but it doesn’t always work, and it doesn’t work the same for all. What really counts is the context in which innovation is applied. According to the report, 44 percent of companies who reported that their innovation strategies are clearly aligned with their business goals —and that their cultures strongly support those innovation goals — delivered 33 percent higher enterprise value growth and 17 percent higher profit growth on five-year measures than those lacking that alignment. (By contrast, over half of companies reported that their innovation programmes and their business strategies and culture were out of alignment, and 20% of companies didn’t even have an articulated innovation strategy.)

My own view is that the distinctions between innovation and improvement have been blurred in recent times, and the advantages of focus over finance have been overlooked. With so much hoopla about innovation in the business press, it’s tempting to believe that any change is innovation and any innovation will work.

But keeping up is not the same as forging ahead and brands need to be a lot more judicious in that regard in their identification of what they are developing. What may look like adjacent innovation at the outset can, at the pace at which markets move today, be little more than incremental improvement by release date. Incremental improvement is vital of course – but it’s not a gamechanger. It simply keeps you up to speed in the game you’re in.

More importantly, true market leadership is powered by exciting ideas not just impressive ideas. It seems to me that too many companies judge the success of their innovation programmes on technical shifts that wow colleagues and industry insiders. But the significance of these breakthroughs does not necessarily translate to marketability and therefore sales. And the changes themselves are not necessarily in line with where the company is heading, what the brand represents or where demand will rise.

There’s a significant difference between invention and innovation in a commercial context. Invention makes something new. Innovation contributes something new. It actually changes the company’s possibilities. That won’t happen if innovators don’t develop engaging innovation; innovation that doesn’t just solve a problem but actually meets a tangible and evolving need in fascinating ways.

Engaging innovations are the ideas that will power the business forward because they will gamechange the sector to your brand’s advantage, lift margins, meet future market needs, inspire customers to buy and directly contribute to the purpose you have set yourselves as a business.

Does your innovation programme do that?

If not, let me make two suggestions. First, change the innovation conversation so that it does.

Secondly, and even more importantly, change the participants in those conversations. If there’s not a senior marketer in the loop, changes are your circle’s either plain wrong or not wide enough.

More reading

The new role of marketing
The great customer vanishing act: what happens when you can’t track them?
The portfolio approach to strategy
The fall of the wall between customers and culture
The power of being purposeful

Other perspectives

• The Leader’s Path to Innovation: Less Control, More Chaos (forbes.com)
• Innovation Overusue (om.co)
• The 6 Keys to Creating an Innovative Organization (punchandkiss.com)
• Is Experimentation Innovation? (marketersstudio.com)

Maintaining brand loyalty: 4 ways brands get it wrong

Most good marketers know how to gain top of mind. Good marketers are adept at widening the funnel at the top end. They’ve good at introducing new lines, new variants, new dimensions – in order to attract new customers. They know how to work with their agencies and their internal teams to fashion a story that intrigues to draw an audience. They know how to weight media flights and craft promotions that persuade consumers to call or to visit. They’ve learnt to charm. Competition’s taught them to do that well.

That used to be their biggest challenge.

Some would argue of course that’s never been more difficult, but, ironically, it’s not the biggest challenge marketers face anymore.

Now the biggest challenge facing marketers is gaining and retaining front of heart: sustaining the appeal for those who already believe in the face of ongoing enticement from determined competitors.

That’s because, between initial purchase and continued purchase, a vital change takes place. What consumers need at first is awareness, authenticity, excitement and a sense of gain. The sales funnel works well to get them through the obstacles to first buy.

But after that comes the need for affirmed faith. Once consumers are passionate about a brand, they need different things. They certainly don’t need to be sold to anymore – at least not like they were sold to at first. Now they need to be reminded that they’re making the right choice every time they buy, and they need to feel rewarded for the decision to lock in.

Problem is, for so many brands there’s no real sense of that reward. They either ignore loyal consumers. Or smother them. They group them as stats. Or they don’t segment them at all.

These to my mind are four of the biggest mistakes that marketers make that lead to a loss of loyalty:

1. They can’t make the transition from sell to story – some brands put product targets ahead of relationship targets in the mistaken belief that if they sell more, they will earn greater loyalty. They keep using the same sales model with people who are already loyal to them in the belief that they have to keep convincing consumers to buy again and again and again. But, once a strong relationship is established, revenue is one of the outcomes of that relationship, not the qualifier, and that’s where more brands need to focus their attention. No loyal buyer wants to feel that they are only as important as what they last paid for. And no-one wants to feel taken for granted. Brands need to become much more adept at telling stories that keep loyal customers intrigued and wanting to become more involved. After the initial challenge of conversion comes the deeper challenge of immersion.

2. They’re afraid of conversation – many brands are afraid of debate and honest discussion. Conversation concerns them. It feels like a distraction from the real issues of getting out there, competing and making money. I’m always intrigued by how readily marketers agree that word-of-mouth is the most powerful way of winning business, and yet how so few seem to act on the logical extension of that thought – that WOM must be the most powerful way of keeping business. Question: what are you doing to keep your loyal customers talking?

3. They think a community is a high-maintenance relationship – so many brands say they welcome feedback when in fact they don’t. They listen to it. They probably record it. But that’s as far as it goes. Actually, they think of their front line as a defensive line and their frontline staff as a resource that is there to limit damage, absorb or deflect criticism, and basically function as a human answer machine service with scripts and carefully cured responses. But if you don’t give your people the permissions and the tools to genuinely interact, to ask questions and to feed back what they hear into the organisation, you are paying a lot of people a lot of money to frustrate everyone by the book. It may look right operationally. It may function correctly by the numbers. But its greatest efficiency, in reality, is the streamlined manner in which a regimented contact centre destroys the desire for interaction. In time, people switch off.

4. They stick with what they know and they tell themselves it’s what people want – the last thing any brand should do is treat its loyal fans as a static constituency, and yet so many do. The more they get to know their consumers the more they look to categorise them in ways that feel familiar. Problem. People are just not that simple. If you fail to test the boundaries with consumers who love the brand, all you continue to offer them is more of the same. That’s not exciting. The challenge for any brand is to bring its loyal customers with it as it evolves, so that they feel involved and included based on what they know, at the same time as they feel stimulated and intrigued by the new things that are presented to them.

Brand loyalty is basically about keeping people interested. It’s about elevating your loyal customers’ heartbeat over a sustained period of time. That’s harder than it sounds in a world teeming with distractions.

More reading

The great customer vanishing act: what happens when you can’t track them?
Not a problem: success pivots on what you solve, not just what you know
Brand dynamics: the shapeshifting of brand likeability
Twinkle, twinkle, twinkle …
The business of cloning
Always be branding
You can’t lead as a brand if you follow another brand
Great brands unearth
Is your brand ready for the experience war?
Brands at the speed of life

Other perspectives

• 8 ways to build brand loyalty (holykaw.alltop.com)
• Understand before being understood (twincreekmedia.com)