This is slide introduces the audience to a service being offered by Nick Ursini. The focus is in combining capabilities in the area of qualitative market research using in-depth interviewing techniques, and information processing to bring value to the client’s strategic marketing and business development objectives. It is driven by the concepts developed by economist Joseph Schumpeter (1883-1950). He wrote three books: Theory of Economic Development, 1911; Business Cycles, 1939; and Capitalism, Socialism, and Democracy, 1942. He studied economic growth, business cycles, and the conflict between capitalism and socialism. His first book documented that economic growth was caused by entrepreneurs who turned science and technology into wealth generating commercial successes. The second book showed that business development came in a non-linear fashion. It was irregular and occurred in bunches. The third book questioned political efforts to redistribute wealth and manage the business cycle. He thought these efforts would destroy the conditions under which entrepreneurs flourish. He also thought that large corporations would push the entrepreneur out of the decision-making process. Schumpeter coined the phase, “perennial gale of creative destruction,” which means that in capitalistic economies weak industries and companies had to be destroyed in order for thriving ones to take root. I am proposing a methodology that takes into account differences in functional specialties, political realities, logical thinking, and solid analyses. It is linked together by strong leadership to effectively make decisions that can positively impact the business’ results. The process is designed to help a business manage the difficult changes necessary to stay out of the “weak” category even when participating in an industry under pressure.
This chart is meant to explain the process flow from gaining input to creating a more robust understanding of the customer and channel partner’s feedback. It is important to point out the need to first document the organizations’ current perceptions because it forms the backbone of the firm’s knowledge base which in many cases is unwritten. Any attempt to challenge those perceptions will be a failure because people generally do not change deeply held beliefs until given a valid reason to believe in something new. Customized research can be designed to complete knowledge gaps. The next steps are to create models in the form of decision trees, system flow charts, and other appropriate graphics and short stories to convert information into intelligence. The final step in the process is to expose the models to all the necessary internal functions with a stake in the decision’s outcome and responsibility to implement the direction. It is a step requiring leadership because it is too easy for people to acquiesce rather than provide critical input.
This chart shows the importance of taking into account: (1) the technical (content) focus necessary to support decision making, and, (2) the organizational factors necessary to gain support. What is important with this slide is to point out that an appropriate balance must be achieved between the two areas of focus. One involves making the “right” decision while the other involves achieving “buy-in” for the decision. Taken together, the right technical decision and the organizational acceptance enable more effective implementation of the decision. This chart balances the pressure for more studies against relying on the firm’s current beliefs which tend to reflect the firm’s culture. Success is when the technical side of the work blends with the organizational dynamics to form a consensus around the decision-maker’s direction. This chart is borrowed from Decision Analysis training materials developed by the Strategic Decision Group of Menlo Park, California
This chart demonstrates the number of areas requiring input to build a valid market model. It views the business modeling process as an organic system where each knowledge area is interdependent on each other for long-term growth and to develop an ability to adapt to external influences.
This chart addresses the importance of learning what the customer cannot articulate. This is because he or she has no experience or understanding of the product or service attribute being explored in the market research effort. It helps to stress the importance of qualitative research techniques because a well developed dialog and interaction with people in the target market provide insights into human perceptions and reactions. It enables the participant to think more thoroughly about the product or service under review and provide feedback that can be richly interpreted by the market researcher. This is not to say that quantitative research is of no value. However, it places an undue burden on mail or telephone research questionnaires and the people attempting to complete the targeted number of surveys in the allotted amount of time per participant. In addition, there are strong indications that most people do not go through a mental algorithm of features and benefits as compared to needs and wants prior to making a purchase decision. The buying process is essentially and emotional experience. An article in The Wall Street Journal (May 28, 2003, pp.A1, A8) included the following comment in a discussion of Alan Greenspan’s view of household wealth. “He has spent much of his professional life studying the interplay between those markets [housing & mortgage] and the economy – picking at countless, often esoteric, bits of seemingly unrelated data to develop insights that fancier mathematical models miss.” It is just this level of insight into any subject that can lead to improved decision-making. It can separate a business from rivals that are hovering around average levels of financial performance. This chart was originally created by Professor Kano of Japan based on research showing that a deeper understanding of customer experiences with a product or service can lead to improvements over traditional telephone or mail survey research in terms of generating greater customer excitement with a product or service and/or shorten the time and resources needed to achieve any given level of customer delight.
This chart enables the identification of all the attributes a customer would desire in a product. More importantly, it enables the team to focus in on a target market – that is, people with similar desires and preferences who tend to form an homogenous group of buyers. For example, people who buy coffee at McDonalds have different preferences than people who buy a cup of coffee at a five star restaurant. As another example, people who buy sports cars differ in preferences from people who buy minivans. There are numerous examples that can be used to show differences in market segmentation. The chart also provides an opportunity to combine intelligence on the performance of competitive products in terms of the target customer segment’s needs and wants. This chart enables the client’s team to see how different combinations of needs/wants and methods to satisfy those needs come together to satisfy different market segments. This chart is borrowed from the Product Planning Matrix used in the multi-faceted Quality Function Deployment process.
Pricing is never and uncertainty. It is a decision made by people taking a product or service to market and is under the firm’s control. However, it is impacted by several influencing factors, some of which are knowable and others are not. Uncertainties involve the competitor, channel partner (marketing intermediaries) and customer reactions, and your brand’s true market power. The only way to reduce the uncertainty is by obtaining intelligence on the competitors’ offering, customer reaction to the available options, gaining an understanding of un-met customer needs or opportunities to create meaningful excitement in your product or service. Channel intermediaries are often used to reach customers. It is important to understand their critical needs. Large retailers favor firms with the ability to pay ever increasing rebates, coop advertising fees, slotting fees, new product introduction fees, initial stocking allowances, etc. Rebates are usually associated with total sales dollars. This approach places firms participating in single product categories at a strategic disadvantage. The customer’s ability to understand the value behind your pricing and the product or service’s value proposition is a function of how well you can support the marketing communications campaign. “ Pricing problems,” are like the tip of an iceberg. You must first face up to a market strategy problem to get the pricing right. It is important to first establish a strategic pricing program rather than establishing prices. This helps avoid ending up in a customer’s “willingness to pay” pricing strategy which can destroy the firm’s long term value structure. It is important to remember that in most organizations logic rarely wins. The best approach is to start small and establish a pricing program that yields a few successes to win over the “peasants” as a way to win over the “kings and queens.” Finally, it is important to remember that business decisions rarely improve or yield improved financial results by attempts to obtain perfect information. Investments in money and time for more information follows a diminishing return function.
Customers don’t know how to map features into benefits. They don’t know how to quantify benefits in monetary terms. They have poor “reference price” expectations. They undervalue innovations and use non-optimizing decision rules. Pricing research is best conducted using a value-based interview guide with small sample sizes to allow in-depth research. The research needs to assume that preferences are changeable. It must be designed to objectively gauge the product or service’s value to the customer. Typical large sample research efforts provide top-of-mind gauges to price sensitivity. They assume preferences are fixed and are designed under a “willingness to pay” mindset. Understanding how people make buying decisions are critically important from an emotional perspective. Very few people make buying decisions based on an algorithm of features and benefits in relation to needs and wants and price. Instead they use a reference benchmark to evaluate your price. In many cases the benchmark is inappropriate and is impacted by brand image and associations. The most relevant issue in pricing is the Economic Value you offer the customer compared to the competitive alternatives. Other valuation methods such as Use Value, Perceived Value and Expressed Value (willingness to pay) are not as important. Price Sensitivity is a function of: Perceived Substitutes, Unique Values, Switching Cost, Difficulty to Compare, Price-Quality, Expenditure Amount, End-Benefit, Shared-cost, Fairness, and Inventory Effects. If the “customer” is an industrial purchasing manager or a retail merchandising manager then it will be difficult to communicate a message based on the “value-to-the-customer” because he or she does not accrue the benefits – they don’t realize the value. You cannot sell value to someone who does not value the benefits. It therefore is important to understand all parties involved in the buying process. They typically are Deciders, Influencers, Gatekeepers, Initiators, Users, and Buyers. It is important to understand the value relationship to the customer and create appropriate methods to communicate that value. This is more important than getting the price right and is a key aspect of pricing strategy.
This chart shows how different models based on sound input come together to assist the process of choosing among significantly different but valid alternatives. It shows how the various models flow together and how they take into account the internal situation, competitive intelligence, time related issues (most of which are non-controllable) and flow finally into common financial performance measurements. This is the point where all the internal information, new research, critical internal assessments come together and enable us to intelligently create financial projections. The numbers might generate a need to rethink the strategic direction or at minimum drives the need for probability assessments of critical uncertainties. It is important to keep in mind that we are dealing with an organic system, which is far different than reviewing historical income statements, balance sheets or cash flow results.
This chart demonstrates how each valid alternative can be graphically shown in a way that includes the organization’s assessment of uncertainty and financial results. Many people contribute to the analysis by bringing their expertise to the solution. This is important because they need to have input in areas that will affect them during implementation. The model consciously takes into account uncertainty, perceptions of risk, and the critical factors that impact financial success. It is worth thinking about the words of Ralph Gomory, President of the Alfred Sloan Foundation, when he launched the foundation’s Limits of Knowledge program. He was quoted in the Wall Street Journal (May 30, 2003, p.1) as saying, “We grow up thinking more is known than actually is.” People had a tendency to trigger misconceptions about the world around us. The words of Rockefeller University professor Jesse Ausubel should generate some additional thought when he said, “The future of markets may be unknowable. That depends on what’s in other people’s minds. Unless I can read your mind I won’t know what going to happen on Wall Street [or any market] except probabilistically.” When necessary, I use a graphically based software product called DPL to map out the decision network and analyze the probability of different financial outcomes based on the work team’s and decision-maker’s relative level of uncertainty over future events. (DPL is a decision analysis software developed by Applied Decision Analysis, a wholly owned subsidiary of Price Waterhouse Coopers, of Menlo Park, California.)
This chart shows a method that can be used to monitor relative performance in the project. All six factors are important, however the two highlighted factors are the ones that most clearly demonstrate that a quality job was completed. #1 refers to assuring that the project has a clear purpose with a defined scope and clearly stated assumptions. #2 stresses the need to avoid the trap of the culture or an individual desiring one decision and then creating straw-man options on either side of the desired option. The alternatives must be doable within the firm’s context. They must be significantly different, comprehensive, and compelling. #3 forces the project to sort out what is important. The market input needs to be correct, explicit, and based on the appropriate facts including any uncertainties over what we know and do not know. The process is not focused on having perfect information. #4 forces us to be explicit on what the firm wants to achieve and be clear on the type of trade-offs it is willing the make. For example, the firm may not be willing to invest in design engineering, a new plant, or make major commitments to a marketing communications budget. If that is the case then it impacts the range of alternatives available. This is acceptable as long as the consequences of these values and trade-offs are understood. #5 addresses the issue of logical thought being applied to market inputs and internal cultural constraints. It involves the reasoning that converts market and cultural inputs into a clear choice. This metric requires the use of models that demonstrate the impact of a decision and avoiding building models that are cumbersome. It requires assessing the probability of certain future events and dependencies rather than relying on single point deterministic assessments. The issue to address is creating the ability to understand the consequences of each alternative. #6 stresses the need for personal commitment to take the necessary actions. It requires building organizational “readiness” from the start and assuring that all input sources are deemed credible. This is where the project can add real value to the firm. (This chart is borrowed from Decision Analysis training materials developed by the Strategic Decision Group of Menlo Park, California.)
Finding Firms With A Future
Customer Driven Marketing, LLC Finding Firms with a Future By Nick Ursini Copyright 2004, all rights reserved Customer Driven Marketing, LLC
Capitalism Favors the Bold • Fearful people are not rich people • New technologies & new ways of doing business are destroying old business models • Capitalism assumes three prime human motivations ■ Greed -- better said, Helping Oneself ■ Eternal Optimism ■ Follow-the-Herd Mind-Set ► This is the genetic structure of Capitalism Copyright 2004, all rights reserved Customer Driven Marketing, LLC Thurow, L. (2003). Fortune favors the bold . New York: HarperCollins Publishers, Inc.. , p. 31-51)
Why is Genetic Structure Important? <ul><li>■ Fear drives risk avoidance & fuels a culture where opportunities are avoided & change is dealt with tactically, not strategically. </li></ul><ul><li>■ Firms can fall in love with their history & believe in lost leadership. New technology & business models can turn once great firms into economic footnotes. </li></ul><ul><li>■ Note stock options & bonuses – who gets what and how far down the organization are they shared? It can signify a “me” vs. “us” culture. </li></ul><ul><li>■ Note how the firm handles bad news – Any signs of “Mirror-Mirror-on-the-Wall” and “Emperor’s New Clothes” are key signals. </li></ul><ul><li>■ look for signs of a successful business development history – First with new initiatives or a follower? One is not better than the other – it’s a matter of decision-making & effectiveness. </li></ul>Copyright 2004, all rights reserved Customer Driven Marketing, LLC
The Makings of a Great Firm Copyright 2004, all rights reserved Customer Driven Marketing, LLC Look for evidence of three key factors • Disciplined People • Disciplined Thought • Disciplined Actions Collins, J. (2001). Good to great . New York: HarperCollins Publishers Inc.. , p. 17-38)
The Leadership Imperative Copyright 2004, all rights reserved Customer Driven Marketing, LLC Leaders build organizational strength though: • Personal Humility • Value Knowledge, Facts, and Results • Professional Will to Make-it-Happen Collins, J. (2001). Good to great . New York: HarperCollins Publishers Inc.. , p. 39, 69-87) ► Process is critical but can be used as an excuse for lacking the will or competence to make-it-happen
The Brutal Facts Copyright 2004, all rights reserved Customer Driven Marketing, LLC Look for evidence that decisions are based on facts ► not dreams The best firms believe they will prevail, regardless of the difficulties AND AT THE SAME TIME THEY Confront the brutal facts of their current reality Collins, J. (2001). Good to great . New York: HarperCollins Publishers Inc.. , p. 69-89)
Be a Hedgehog Not a Fox Copyright 2004, all rights reserved Customer Driven Marketing, LLC Fox – Fast, sleek, beautiful, fleet of foot, and crafty Hedgehog – Dowdier creature, waddles along, looks odd The fox knows many things and tries them all no matter how complex. The Hedgehog knows just one thing and does it very well. Collins, J. (2001). Good to great . New York: HarperCollins Publishers Inc.. , p. 90-91)
Hedgehog Concept Copyright 2004, all rights reserved Customer Driven Marketing, LLC • Discover what the firm can be best in the world at • Discover what drives the firm’s profit engine ■ P iercing insights into how the firm creates robust cash flow • What’s the firm and its people deeply passionate about Collins, J. (2001). Good to great . New York: HarperCollins Publishers Inc.. , p. 95-98, 118-119)
Hedgehog Example 1 <ul><li>Warren Buffet’s story of Eddie Bennett, a 19 year-old batboy in 1919 </li></ul><ul><li>• Started with Chicago White Sox -- won World Series. Switched to Brooklyn Dodgers -- won league title. </li></ul><ul><li>• Joined Yankees in 1921– won 1 st pennant & 5 league titles in 7 years. </li></ul><ul><li>• What’s the Managerial Point? </li></ul><ul><li>■ In 1927, with Ruth & Gehrig, Eddie received $700, his World Series share for 4 days of work -- about equal to a batboy’s full year earnings. </li></ul><ul><li>■ Eddie understood this: How he handled bats was not the key. To be a winner he had to work with winners. </li></ul><ul><li>► What counts in business is to find the cream of the crop in any given industry’s playing field! </li></ul>Berkshire Hathaway Annual Report, 2002. p. 4.
Hedgehog Example 2 <ul><li>• From Laura Hillenbrand’s book Seabiscuit, An American Legend : </li></ul><ul><li>“ I think [Charles Howard’s] achievements were a result of his ability to see possibility without concern for the package it came in, and in his willingness to stake something on that possibility. He saw character before he saw anything else. If this story has a lesson, it’s that character reigns preeminent in determining potential. He saw the undiscovered greatness in horse, trainer, and jockey, assembled this motley crew, held it together, and positioned it to exploit its strengths. ” </li></ul>Hillenbrand, L. (2001). Seabiscuit, Reader’s Guide . New York: Random House, Inc. , p. 3, 4
Culture of Discipline Copyright 2004, all rights reserved Customer Driven Marketing, LLC According to Viktor E. Frankl, Man’s Search for Meaning, Touchstone Books, 1984. “ Freedom is only part of the story and half the truth … That is why I recommend that the Statue of Liberty on the East Coast be [balanced] by a Statue of Responsibility on the West Coast.” Collins, J. (2001). Good to great . New York: HarperCollins Publishers Inc.. , p. 120)
Culture of Discipline Copyright 2004, all rights reserved Customer Driven Marketing, LLC Look for firms with consistent systems & clear operating constraints • People are given freedom • It comes with responsibility • Self-disciplined people do not need to be managed • Firm manages the system not the people Collins, J. (2001). Good to great . New York: HarperCollins Publishers Inc.. , p. 124, 112-143)
Get the People Issue Right • The adage “People are your most important asset” is wrong • The RIGHT People in the RIGHT positions ARE your most important asset • The RIGHT PERSON has more to do with character traits, and innate capabilities than with specific knowledge, backgrounds, or skills. Copyright 2004, all rights reserved Customer Driven Marketing, LLC Collins, J. (2001). Good to great . New York: HarperCollins Publishers Inc.. , p. 64)
Home Depot’s 14 Concepts Copyright 2004, all rights reserved Customer Driven Marketing, LLC 1. Invisible Fences – freedom to act within moveable limits 2. Three Bundles -- Non-negotiable, Entrepreneurial, Autonomy 3. Hire Overqualified People 4. Have a Financial Conscience – watch the expenses 5. One-Man Shows Don’t Cut It 6. How Would You Like Your Eggs – Communications with the Top 7. CEO’s Test – It’s all about eye contact Marcus, B. & Blank A. (1999). Built From Scratch . Toronto: Random House, Inc.., p. 238-263)
Home Depot’s 14 Concepts (continued) Copyright 2004, all rights reserved Customer Driven Marketing, LLC 8. Gonna Go ‘ Round in Circles – 360 Performance Feedback 9. Binding Relationships – it takes a village to accomplish goals 10. Do the Right Things, Don’t Just Do Things Right 11. Kill Bureaucracy 12. Hire Smart People 13. Invert the Organizational Pyramid – We all serve customers 14. Respect the Individual Marcus, B. , & Blank A. (1999). Built From Scratch . Toronto: Random House, Inc.., p. 263-274)