David Elliott Videos Transcript


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David Elliott Videos Transcript

  1. 1. David Elliott - 2008 Sessions A collection of discussions on topical business management issues The Challenges That Small Companies Face I just like to talk for a few moments about small companies and the challenges they face. Curiously, around 90% of companies in the British isle are small, medium enterprises however most of the support literature written by academics really talks about large companies and so there’s a bit of a gap between the established understanding of what makes a business tick and the practical experience that people need on the ground when they are basically fighting the tide everyday. I’d just like to come out with a few ideas that are based on 10 years+ experience dealing with SME's having previously operated with some of the pretty large companies. What sort of tips can I suggest? Well the first really is stick to your knitting. By this I mean stick to what you know best. Often companies are tempted to step out of there comfort zone and try and develop in markets which they understand only to a small degree and often with products that they don’t really know how to produce. Whereas large companies can throw money at the wall and hope that sometimes some sticks with a small company this can very quickly be the kiss of death so that’s the first idea - stick to your knitting. The second idea is, what drives profit? Your financial performance is a function of your operational expertise combined with your ability to market the products properly. Often there is very little that can be done on the operational side because that’s why your in business to start with because you’re pretty good at what you do, so then the emphasis should be on marketing. Now, marketing is not just a couple of sales brochures, but is the ability to get over the fact that you’ve got something different in a way that is persuasive. Basically, that © David Elliott 2008
  2. 2. persuasion in a small company is likely to be the result of personal relationships. Small companies can’t compete on price so they have to compete on service. This applies to companies producing goods and literally services so it’s the personal touch. The extra effort you put in to the business the ability to really understand what the customer need. This is very important and companies have to work harder, particularly with existing customers. The chase may be attractive in looking for new customers, but it’s your existing customers that really drive the profitability of your business, so please don’t neglect your existing customers. Stick to your knitting, stick to what you do well, stick with those customers who have done business with probably from day one and continue to deliver superior value for those people. If you’re successful in generating additional business through those customers it’s likely to be more profitable than chasing new customers. The last tip is from those existing customers, there is a huge number of new customers. If they are delighted with what you’ve done, talk to them, gain assurance from them that they’re happy with what you’ve done and then say “have you got other contacts with similar problems to the ones which we were able to resolve? If so, can I get in touch with those companies?” thus using existing customers to find new customers. So, stick to your knitting, deliver on service and work hard with your existing customers. The Power of the internet for your business I'm sure those who’ve got teenage children will know that they can text check their Facebook and download music almost simultaneous in a manner which would completely astonish people of the 50+ type who were not brought up in this era. So its inevitable that the way people communicate and the way people think the way people do things all of these are changing bit by bit gently, gently and businesses will have to adapt the way that they conduct their business to reflect the way that their own managers are operating. A significant example of this is the trend towards open innovation. In times not so long ago innovation was always done with guys in a white coat in a secret type building and it was not shared. Compare this with computer software that’s challenging the likes of Microsoft compare this with fashion brands which are developing through the internet using contributors who are not necessarily even known to the companies but are contributing ideas which are then being shared in an eco friendly way. So if you look at the major thrusts the growth the power of the internet combined with a desire to save and protect the planet we may well see different styles of business creeping i from the fringes n but ending up in the main stream Please take notice of these trends and try and . be proactive and don’t get left behind. Developing International Strategy In today’s global economy any company no matter how large or small will one day be faced with the challenge of the international marketplace. This can be in entirely disruptive for companies and my first suggestion really is if you receive an enquiry through the internet or the phone, is use this as an opportunity to review were you are with your existing business. It may be that opportunities are © David Elliott 2008
  3. 3. available in your domestic market, the market that you know intimately, that you haven’t really thought about. So the first tip is if you receive an enquiry from the international market place when this is completely new to you, ignore it and use the time initially to consider what you should be doing in the market that you know best. If you really do believe that there are no significant other opportunities in your domestic market, make the d ecision to take international business seriously. By this I mean accept that in the short term and perhaps even in the medium term you won’t make any money out of an international venture. Take the opportunity to decide at board level that this is something you wish to do. It shouldn’t be the third finger on the left hand, jumping on a ferry or on a plane and going off and having a look. Make a serious board level decision that this is what you want to do. Once this decision has been put in place, then find the right people to look after the international market place. Don’t fall into the trap of promoting your best UK sales manager but look for somebody who really does understand other cultures, who really has the right sort of track record. This is not just the ability to speak the language, important as this may be, but also really understand different cultures. A quick guide to understanding cultural differences is through a Dutch scientist called Hofstede, whose work is readily available on the internet. This is a very good read and helps understand some of the differences that are readily on the international market place. If we move on having made some initial enquires etc, then you should be prepared to adapt your product to the international market place. If you think that one size fits all, then please think again. The third step should then be to find a distributor - find someone who knows the other end of the telescope intimately, who knows the market, who can work with you in ensuring that your adapted product fits the international market place. If these steps are put in place then eventually you will develop an appropriate international marketing strategy that will enable you to add, over time, incremental profits to your business. You will need a lot of intestinal fortitude, it won’t be easy, but these steps will help ensure that the international market place becomes, over time, a source of incremental source of profit for your business. The Glaringly Obvious This time I’d like to talk about not seeing the glaringly obvious. This can apply within businesses, but also in other situations, and in fact the other situations give a very, very good example of how people appear to be missing a trick. Unfortunately education in this country, in the public arena that is, those schools where people are not actually paying for the privilege, has a number of problems, and I think that part of this problem has been very obvious for a long time and people have not seen the implications. Why have they not seen the implications? Because they’ve not looked at things in a holistic fashion. This can also apply in businesses where problems are assessed by the accountant from a financial point of view, the marketing people from a marketing point of view, et cetera, et cetera, in silence, and nobody really puts it all together. So let’s go back really quickly to this example from, in fact, education. If you look at performance up to the age of © David Elliott 2008
  4. 4. eleven in the so-called SATs exams pupils generally do reasonably okay, certainly on an international comparison basis. If, however, you look at the figures or the results at fourteen you see a real deterioration in performance. So there is a problem. How has this been resolved or how have people tried to resolve this? Basically they’ve tried to improve performance at secondary school level, but sadly the results have not been very impressive. How would somebody else view this situation that is a non-educationalist or somebody who’s not politically involved? What perhaps needs to be done is to analyse what happens between the age of eleven and fourteen, and I think the evidence is very, very clear that schools up to the age of eleven are very cosy, neighbourhood environments. The schools often cater for kids who can walk to school or at least can be walked to school. The atmosphere is friendly, the children feel comfortable. What then happens after eleven is that they are obliged to go to these monstrously oversized schools where suddenly they’re obliged to run around every day with a full day’s books in their bag, or whatever, and there is a huge throng of people, and these poor eleven year old kids are expected to immediately get used to it and then to thrive, dealing with people who may come from totally different environments. My suspicion is that the schools are too big, that the deterioration in performance is simply the result or children being unable to adapt to their new environment. The answer would be to have smaller schools and not waste as much money as the government has been doing on academies and such-like which don’t solve the problem. So then the glaringly obvious has been missed. Nobody has looked at it in a holistic fashion. If we move more to the business arena, often why things are going wrong are in the numbers, they’re in the statistics, they’re in the things that are on everybody’s computer, but nobody’s looking at it in a holistic fashion, nobody’s really assessing what is available information. So how can this be avoided? First of all, I think that there should always be somebody looking at things who is away from the mainstream, who is away from the day-to-day fighting fires, looking at things from an immediacy point of view. Have somebody come in and look from a helicopter perspective, take an overview and review the situation, look under the proverbial bedclothes for the problem, because people get too committed to the status quo and they’re unable to see the wood from the trees. I think that this example is interesting and I hope that I’ll be able to talk to some of you on a one-to-one basis on how this might impact on your business. Go With Your Gut Feeling I’d just like to talk for a few minutes about a pet subject of mine which is basically ‘go with your gut feelings’. Now this covers two specific aspects; one is management, the other is consumer products and the way that people actually respond, particularly in what is proverbially called ‘low involvement categories’. So let’s go to the former first of all. I was very pleased to learn recently that a highly respected academic at The University of Leeds is doing work with managers at a senior level, and the indications are that managers actually rely on intuition much more than has previously been either accepted or appreciated. © David Elliott 2008
  5. 5. Basically we make d ecisions perhaps somewhat on the hoof, but these are not blind, they are as the result of unconscious conditioning. What do I really mean by that? Well I can give you an example which was quoted in the recently published paper of a racing driver who was doing close to a hundred miles per hour on a race track, and suddenly to the outside world he inexplicably braked. Now that braking saved his life, because up ahead there was a horrendous crash. Had he not braked he would have driven into that at a hundred m per hour. ile Why did he brake? Well, apparently, once they checked into this, what had happened was that at that given moment he realised that the crowd wasn’t looking at him, their attention had been diverted to the crash ahead and this, with all his experience and conditioning, had made him realise intuitively that something was wrong and he braked. So this is an example of how the unconscious mind can take over, and this is a very interesting area in terms of management and the attitudes towards how managers manage. Previously work has talked about satisficing in that people work on a limited amount of information which they then add to their intuition. So in other words, go with the gut feeling and often the management decision will be right. How can this also apply to consumer products? As I mentioned we’re talking really about low involvement products, things that you buy every day. Your attitude towards those products is not really at a conscious level. So then if research starts to ask questions of “How do you think/how do you feel about this?” the answers you probably give won’t be accurate, because we don’t know what we know because it resides very much in the adaptive subconscious. How can we then pull out what we really think about brands? A very useful technique is gaining credibility all the time and there are articles on this on the website about metaphor elicitation. This is the work from a highly respected Harvard professor and it indicates that our core beliefs in brands again lie in the adaptive unconscious. So what do I mean by that? Well let’s give an example. Apparently Zaltman’s, that’s the professor’s name, work indicated that people use the product Coca-Cola as much to get a bit of personal space, so it’s an opportunity to get away from the hustle and bustle of the world and have some private time. Now this had never, ever emerged from research, but it came out very clearly in work that used metaphor elicitation. So fundamentally on that level we don’t know what we know, and thus going by gut instinct walking round the supermarket we’re much more likely to be doing things unconsciously rather than consciously. It may be possible to pull these apparently disparate threads together, but this is a mere introduction, and I hope you found it of interest. Family Companies. Good morning. David Elliott here again. The videos that I’ve recorded recently have been obviously of some interest to quite a number of people so this is the next in what I hope will be an ongoing series. Obviously if there are any specific subjects that people would like me to talk about as an introduction then please get in touch with me through the website. Today I’d like to talk about family companies. There are a very large number of family companies in this country and obviously overseas. In fact there is a Chinese proverb that says no company survives three generations. This is interesting in that often companies are started by a very © David Elliott 2008
  6. 6. enlightened individual, his sons, daughters, et cetera. come in to the business and unfortunately the next generation fails to continue the success. How can we avoid these sort of situations? Well I’ve often heard said ‘that doesn’t apply to us, we’re a family company, we have our own way of doing things.’ That probably is a very bad place to start. In fact, if it’s a family company then lots of things have to be put in place simply to ensure that those members of the company who are not family feel entirely comfortable and not disadvantaged by the fact that they don’t belong to the family. What do I mean by this? Well family companies can often be run effectively on an anecdotal basis. There are no formal meetings. Dad can talk to his sons at home, on the phone day and night, and it runs on a very ad hoc basis. This makes it very diffic ult for those who are not part of the family. So I would suggest that a small family company needs formal meetings and a formal structure, even perhaps more than a non-family company. Succession plans have to be utterly transparent. Dealing with mid-level managers can be quite ticklish because they feel there is no real future for them because they are not part of the family. Other issues can often crop up in the family companies where it’s not unusual for the son of the founder to go off to university, come back and assume a role in the company that perhaps doesn’t reflect his or her experience. If somebody comes back from university they have to actually be knocked into shape in the way that a large company would do. So how can a father, the owner of a company, ensure this happens? Well suggestions are if it’s a company selling consumer products or in a business to business situation then let him go out on the road in the former case, or in latter case make sure that he or she doesn’t spend too much time in the office. Don’t give big titles too early. They may be legally directors of the company but on their business cards “Manager” is often a sufficient description. This means that then the outside world will view them in the same way as similar people, similar in the sense of age, from large companies. Don’t put them in an awkward position of having to justify their title when they don’t have the experience to do it. This will facilitate relationships with third party suppliers, often who become the whipping boys of family companies, simply because there’s a huge belief in what the company’s doing, which is it’s raison d'être. This can often lead to difficulties of accepting responsibility, in that if there are problems that responsibility is often thrown at suppliers rather than internalised and a view worked through with a supplier. This is a difficult one where evidence is very much that this happens. I hope that these sort of indications are of interest. So to sum up really, if you’re a family company then bend over backwards to make sure that those people who work for you don’t feel disadvantaged because they’re not part of the family. Ensure that there are regular formal meetings so that issues at the management level are always out in the open and are n ot decided behind closed doors within the family environment. Certainly financial matters that should be taken at the Director’s level need to be dealt with in that way, but often companies assume they have regular board meetings when in fact they don’t, all they have are anecdotal discussions in the family. Then make sure that graduates coming in to the family company are at the right level and are seen by the outside world for precisely what they are; that is young, talented people who lack experience and are learning the ropes as they go along. Perhaps the last point really is, don’t over-reward family members when they come into the company, either in terms of status, job description or perks of the job. I hope these comments are useful for people running a family firm. © David Elliott 2008
  7. 7. What Is Your USP? I’d like to talk for a few moments about something that cropped up recently when I was with a very good business contact in an “alien” situation – alien in the sense that he was facing potential overseas customers. One of them asked him quite simply “What is your USP?”. Unfortunately this completely flummoxed my business contact and it made me think that it’s something worth considering in any business. What do we mean – what is meant by “USP”? In simple terms it is Unique Selling Point. Now, I like to assess this in the way that if you take a photograph, and haven’t quite got everything set up, the image you will get is quite fuzzy. If, however, everything is set correctly you will have a very sharp image which reflects exactly what you are trying to do. So, a USP for a brand, for a company, can allow that company to set a very clear image of what it is and what it is trying to do. If you think of some famous advertising campaigns. Heineken for example talks about “refreshes the parts”, Dettol talks about “Dettol Protects” and from the car world, Volvo successfully created an image of safety. All of these aspects were able to allow the brand to differentiate itself from the crowd – to give a sharp focus and to allow a single- minded approach to marketing and sales, so the fuzziness has gone. Now you might think this is only applicable to large companies, to major brands, that have got huge advertising budgets. Now that’s not really the case, because a company that does not try to differentiate itself, who does not try to create a USP, is allowing itself to be placed in the category of a commodity trader. So you do that at your peril. However, how can you do it if you’re a small company? Well, let’s take an example of creating a USP around something as straight forward as a plumber. Well, plumbing is plumbing is plumbing! But, how can you differentiate yourself? Well, there are several ways – first of all, if the boss of the company is seen to be involved with all processes then service is enhanced. If responses are timely both in terms of enquiries and pricing, then, again, people start to think “well this business is a little different!” So you can build up a cluster of small things – e.g. car parks for customers. You can change the approach, you can have an excellent receptionist. You can do many, many little things to make yourself stand out from the crowd, so don’t waste the opportunity. Ideally, this USP can be stated in a few words. In some cases, if you’re internet based, it can be a one word USP. This needs to be worked out very carefully. If, however, you succeed, then I’m sure you will be able to build yourself a unique position within your own marketplace. Why some SMEs prosper while others don't. I’d like just to share a few thoughts with you about why some SMEs (Small Medium Enterprises) prosper whereas others remain stuck in a sort of rut, which can be a sales turnover which is neither satisfying nor helpful. Why should this be? Well, there are thankfully a lot of people looking at this area because SMEs are vitally important to the UK economy – they are major employers and major engines of growth. So, why do these things happen? Well you can imagine that when you start a company you’ve got an idea, you’ve a belief, you’ve got a dream and really you just want to get on with it, and this leads to a lack of planning in the company, it means that basically the company is just doing things, so it doesn’t really think through what it is doing and often this lack of planning can leave a very shaky foundation to the company. The © David Elliott 2008
  8. 8. foundations will always be non-resistant to things like a recession, things like a depression, things like a change in the economy etc. etc, so that’s not really very helpful. Often the company hasn’t really thought through things I’ve talked about elsewhere and that hasn’t really organised what it is that makes the company different, so it doesn’t really have a USP. So the company is on shaky foundations, it doesn’t really have a USP, and it muddles-through. It muddles-through through energy and commitment and nobody ever really denies that people in small companies work tremendously hard, but unfortunately often in the words of Harvey Jones, they can be “busy fools” – busy with the wrong things. Busy with “pushing water uphill” and not really giving the customer what they want in a way that the customer will appreciate. So they’re rushing around, and that pure enthusiasm can lead to initial momentum, but that momentum is difficult to maintain. Cranfield University is very, very heavily involved with SMEs and has an enormous amount of very useful information. So I think that often businessmen that have reached this point should consider taking a little bit of time out and going to their local university and picking up additional skills. This then will force the company to delegate a little bit of additional responsibility. Certainly those companies that seem to prosper do invest in their staff, in their training, and the guy at the top starts to remove himself a little bit from the “engine room”. So, if the boss of a SME knows that he is still doing everything that he did when he first joined the company then perhaps he has not learned how to delegate. So these are some of the areas worth considering. Also, there’s a very interesting finding from Cranfield again, which teased out over a number of years that the fact that those businessmen that were generating superior profits were an unusual combination of people who were prepared to take a risk, but also knew their own limitations. So you can imagine somebody who gambles, because that’s essentially what taking a risk is, although it can be based on intuitive understanding of the environment and situation, but if that’s combined with a feckless disregard for what he knows and doesn’t know, it can be a recipe for disaster. If, however, there isn’t a sense of risk implicit in the business it’s unlikely to move beyond the mundane. So it requires a very special characteristic and it’s probably very useful to consider your own attitudes against this sort of backcloth. Hopefully these tips are useful and I look forward to talking to some of you in more detail later. The Impact of the Recession. I’d just like to talk for a few minutes on the impact of the recession, because this is something that’s in everyone’s mind at the moment and particularly perhaps small companies are concerned about the implications. So, how can I suggest things really at this stage when it’s evolving every day? Well I think there are some basic guidelines and perhaps some ideas that might be useful. First of all, the recession isn’t necessarily affecting everybody in the same way, and so it may be that your particular product will be less affected than other products might well be. Everyone has seen a slowdown in the housing market and linkages to that are fairly obvious and also a slowdown in car sales and the implications again there of suppliers to the motor trade again are fairly obvious. But your service may be © David Elliott 2008
  9. 9. less affected or more affected. So think about whether the recession is really going to hit you now, or whether it might hit you in a few months time, and plan accordingly – and this planning shouldn’t be a knee-jerk reaction. Often companies believe that they should immediately “batten down the hatches”, stop advertising, fire their PR company, cut costs, get rid of people, suspend or delay payments and really cause chaos. That will not be helpful! Nor will a blind belief that, “Oh well, this won’t affect us, we’re not going to be troubled by this, we can see it out, we’ve done it before, we won’t have a problem.” That probably is equally foolish. So then, inevitably, there’s something of a compromise situation. I think that the recession is going to affect everyone in some way or other. So you should be careful about future expansion plans, you should look for small gains, easy wins, and you should be really quite cautious in your approach. But also, it may well be very helpful to look at your core business proposition. In times of plenty, it’s sometimes possible to get away without clarity, simply because everything is on the up-swing. Estate agents appear to be moaning that they’ve lost tremendous amounts of business, but they probably didn’t think about the service levels that they were giving, probably didn’t think about how they were running the business in the times of plenty. So make sure that you are not in the same sort of position, review your business very, very carefully. And above all, perhaps, check three or four majo r features. One is cash flow – because if interest rates are jumping all over the place and loans are more difficult to get from banks that are running scared, then check cash flow. And even the smallest company should have the facility to check cash flow on a weekly basis. Check, also, customer satisfaction. How often do you check with your best customers whether they are happy with the service that you are delivering? And last, or maybe, most importantly, check how your employees are feeling. Because, when the going gets tough they are the people who will bail you out. If they’re unhappy, then they’re not going to put in the extra hours, they’re not going to help the business through what could be difficult, difficult times. Don’t panic, take it as an opportunity to reassess the company’s strengths and weaknesses, review opportunities and threats in a very realistic way and make sure that you can pay your bills and that your cash flow is healthy. I hope this helps - anybody can contact me if they would any further information. The Idiot Box Today I’d like just to talk for a few minutes about The Idiot Box. What do I mean by “The Idiot Box”? Well basically it describes diversification when diversification is totally inappropriate, and with the economic recession and other aspects that are not particularly favourable I would suggest that diversification at the present time is a very risky venture. This is true even in the best of situations but when a company decides to go into a completely new market when they don’t know the market, they don’t really know the customers in that market, they don’t really know how to make the products relevant for the new market, then they are really taking on something that is extremely risky. It used to be almost de rigueur to diversify but many, many large companies have done this in a way that has not © David Elliott 2008
  10. 10. really helped their future prospects. So if you’re a small company I would suggest that diversification is literally jumping into the idiot box. So what other alternatives are there for growth-oriented companies? Simply put, if a company is wishing to review its future position then available to it within its current marketplace and dealing with its existing customers it has three options; one is to penetrate further the existing market. In other words go deeper, harder with those customers that you know already, with those products that you are successfully producing. If this option is not available then you may wish to consider consolidation, where particularly in harsh economic situations consolidation with prudent cost-cutting can actually improve the bottom line rather than make it worse. If, however, this option isn’t really available then in a worst case scenario you should simply withdraw from that marketplace. However, most companies with fairly strong businesses, fairly strong balance sheets and fairly strong customer loyalty would not wish to do that. So what really should they then consider doing? There are many examples perhaps which indicate that the most logical next step is to take new products to existing customers. A couple of examples will perhaps suffice in this context. One goes back really to the 1980s when a fairly small company at that time, Seven Seas, was able to not only revitalise it’s own business performance but also was able to create a new market in vitamin and mineral supplements, a market that had been hitherto been only serviced through health food outlets with natural products being imported from the USA predominately. Seven Seas saw that an opportunity existed to take this product into pharmacy where they had almost total distribution and a very strong brand name. The rest as they say is history. Another example is Cillit Bang from a company called Reckitt Benckiser which is now available in probably around seventy countries worldwide. The company very prudently saw an opportunity to launch a range of hard-working no frills household products through the outlets which they were already servicing. An outstanding success and an outstanding illustration of how it can work to take new products to existing customers. Another option that is available but I would put it very much behind the former strategy is to take your existing products into new markets. If you’re a local producer then you can extend in adjacent geographic segments. If you are already supplying products to a national market then you can consider moving into the international marketplace. However, this will require more changes within the organisation, some of which I’ve outlined in a previous video termed “Developing International Strategy” which you can see on the website, but the opportunity still exists. My recommendation would always be to look very carefully at the opportunities that may well be available to you to take new products to your existing customers. You Cannot Sell Champagne from Milk Bottles © David Elliott 2008
  11. 11. I’d like to talk a little bit about a funny topic perhaps, but it hopefully will illustrate a point. All of these videos can be seen both on YouTube and on degconsultancy.co.uk, but what I’d like to talk about now is the fact that you can’t sell champagne from milk bottles. What do I mean by this? Well what I’m suggesting here is that when a company is looking at the challenges of its marketplace then what it does has to fit both with the organisation itself and with the external environment. In other words, it has to have something that is termed “bi-congruency”. An illustration will perhaps help here, where if a low cost supermarket wishes to attract a very specific segment, for example those who are interested in organic foods, then it has to be aware of who shops with them. It is unlikely the example quoted will make any sense. It may be philosophically interesting to suggest that all you products are from an organic source, but if your customers are coming to get value for money then perhaps having products from an organic source will not be high on their priority list. So that is a mismatch, and what we’re talking really about is avoiding a mismatch, avoiding the ridiculous situation where you’re trying to sell champagne from a milk bottle. How can companies prevent this sort of thing happening? One example is to not over- promise. Ideas from the marketplace are readily available nowadays. There are trend-spotting websites so it’s very easy to pick up an idea. However, is that idea relevant for your company? Is it within your specific competencies and will it actually appeal to you customer profile? This type of analysis needs to be done, needs to be rigorously exercised, within the organisation, and sometimes this can be quite difficult because we all like to feel perhaps “Walter Mitty”-like, that we are a little bit better than in fact we are. It’s no problem to stretch and try to constantly improve, but you must do that which you’re competent to do. In other words, don’t over-promise, don’t try to sell champagne in milk bottles and stick really to what you’re good at. If you’re able to do this then over time it’s likely you will get better and better at what you do, and in fact the costs of delivering the service or product are likely to decrease, at least reduce, and that will allow you to have more time to learn to add to your offering and enable you to grow together with your customers. Brand Extensions Interviewer: Good morning David, today we’ll be talking about Brand Extensions. Have you got any tips as to the best approach for extending a brand? David: Good morning. A very interesting question, and one that faces most brand marketers at some stage or other. I think really any line extension, any move in this direction, must be very, very carefully thought out. If, for example, a brand dominates a category then I would suggest that you’re very, very careful about what you do. If also a brand has a very, very specific image and a very specific place in a given market then I think you should be really quite careful. A good example is perhaps a Lexus car which was launched into a luxury category at a time when the parent company thought that it was stretching really too far to suggest that their current brands entered this completely different market © David Elliott 2008
  12. 12. segment. So I think that’s a good illustration of really be very careful and ensure that what you’re doing is totally in line with the brand’s characteristics. Interviewer: I see. So why do you think a company should consider extending a brand rather than launching a new product? David: I think really this is a question of economics, in that launching a new brand is not only extremely expensive but it can also be quite risky. So if i ’s t possible to launch an extension and add value to the existing brand then that should be considered very seriously to avoid the costs and the huge amount of work that is necessary to launch new products in today’s crowded marketplace. Interviewer: I see. When do you think an extension might not be appropriate? David: An extension might not be appropriate if it doesn’t add any value to the original brand. If the activity’s likely to cannibalise and make customers’ choices more difficult then I don’t think it’s sensible to consider a brand extension. If, however, the extension can give additional value in another segment or add to the core understanding of the existing brand then I think this could be very, very helpful. Interviewer: I see. And how can you help a line extension prosper? David: I think the key issue really is to give it support, to give the line extension the opportunity to prosper in it’s own right and don’t expect that it will merely survive under the umbrella of the existing brand. Give it a life, give it its own legs and then give it an opportunity to prosper in the future. Benefits, Not Features I’d like to talk for a few minutes about benefits, not features. It maybe sounds a little odd, but hopefully I can describe what I mean very quickly. Recently, at a major networking event, I was next to a very nice, very well educated technical salesperson from a very, very imaginative company and we were talking over coffee about his sales literature. As he went through this, to me as a non-technical person I was getting very, very quickly quite confused, because actually if I’m using a product, it’s the benefit that that product gives to me that I’m interested in, not the various technical features. Perhaps I can explain that quite simply: If a drill manufacturer has made a super- drill that goes very quickly through a wall, it’s the fact that it goes through that wall very quickly, so, a benefit like “drills in 20 seconds” is what I’m looking for as a customer, not all the technical details that led to the development of the drill. And this is something that often highly technical based companies forget when they’re developing literature or developing a web-presence to highlight new products. So, the maxim really is always “Benefits, not Features”, and this applies across the board in whatever category you’re actually dealing with. Another example may, perhaps illustrate the point: A company spent an enormous amount of time and effort including developing patents which they were prepared to defend across the globe for a castor that sits comfortably on furniture. Now there are many, many castors, but this particular one was a click- © David Elliott 2008
  13. 13. on castor, very easy to fit, and that was really their intellectual property. However, the benefit was not anything really to do with castors, but to do with floor protection and if you have the misfortune of a flood or a fire in the home, and the assessors go to check the damage, they will not allow for wear and tear underneath, for example, a sofa or a large chair. So these castors would protect the very expensive carpets or whatever. Therefore this company was in the business of floor protection and that enabled them to charge a premium which justified their efforts in order to get a patent and enabled them to compete with products from China etc. with a totally different marketing approach. So here we have an example of a very simple product that was able to benefit from its intrinsic value, ie. its benefits, rather than the features behind the product. So I think this is something that’s very, very worthwhile to consider in any business and particularly those businesses that have a very heavy technology input. Early Adapters of ICT Ian: “Regarding recent UK press coverage: were you surprised to learn that only 21% of companies are strategic adapters of information and communication technology?” David: “No, not really Ian. There’s always a situation in any technological change where you get early adapters and those who follow. And ICT is not necessarily close to the heart of many people who are running smaller businesses. They come from a generation that hasn’t grown up with computers, so their adoption of computers can often be something they go into quite reluctantly.” Ian: “OK. So, what impact would it have if more people thought strategically about ICT?” David: “I think the evidence shows that those companies who do adopt ICT and put it right at the core of their business efforts gain significantly with incremental sales. I think the key issue really is that ICT enables you to put your customer at the centre of absolutely everything you do and in this way your business can grow and become stronger.” Ian: “OK, have you got any quick wins for any companies thinking about ICT?” David: “Yes, I think technology has moved to the point that you can gain additional insight into your customers through a clever use of ICT. Also, there are situations, for example if you are running a consultancy or a B-to-B business then I think it’s absolutely strange that you don’t harness the power of the internet. If you’ve got a new product, or a new idea, and you want to get quick understanding of what you’re doing, there’s no better or cheaper way than really putting yourself in front of a video camera and getting your short video clip on the internet, on You-Tube and on your own website. And many, many consultants, many, many web-developers don’t actually do this themselves, so that to me is a very easy quick win.” © David Elliott 2008
  14. 14. Availability versus Familiarity Good Morning, David Elliott again. Another short video which will appear on the website and on YouTube – if anybody has any questions, please get in touch. What I’d like to talk about today is availability versus familiarity. Now this might a bit bizarre, but I hope that I’ll be able to explain why I wish to talk about this. Often young companies with new products get very excited when they’re approached by major retailers. Of course, this has always been in their dream, they’ve hoped to get on the shelves of supermarkets like Waitrose, Sainsbury’s, Asda, Tescos etc. and perhaps, often in the healthcare sector, which I’m particularly involved with, with the likes of Boots, Superdrug etc. However, if the company has not done its homework in the sense of developing the brand before it gets to the mass outlook stage, then unfortunately availability will exceed familiarity and the likelihood is that after the initial excitement, the euphoria, the joy etc., there will be huge disappointment because the products will eventually be de-listed and then will become very difficult for the company. So what am I suggesting? I’m suggesting really that the company works tremendously hard on familiarity, that is getting the brand known before the retailers come into play. Now this might sound bizarre, but if you get to the point where availability exceeds familiarity then de-stocking is the inevitable next step. So, how can you increase the awareness that people have in your brand without spending an absolute fortune at a time when you don’t have availability? My suggestions on this are as follows: First of all you should start selling the products on the web. This will mean developing a fully setup e -commerce site with a sensible web designer. This will then enable you to test your marketing approach, to gain familiarity in how customers react to your product and also give you a fall-back situation should the retailers ultimately decide that they don’t want your products. Whilst this is going on, you should also engage a suitable PR company – a PR company who shares your vision, who shares your enthusiasm for the product. You don’t have to spend an absolute fortune, you can work together developing suitable press releases, building up an image for your products in the mind of customers before they start to see them on the retail shelves. There’s a maxim that says “The sun should never set on your brand” – in other words, every newspaper, every magazine, every opportunity you can take on the web you should take to publicize why your brand is different, why people should be interested in your brand and why it should move off the shelf. If you’re able to do that then familiarity will match availability and hopefully things will progress from there. Footnote: This material was collated over several months in 2008 with the cooperation of Mr Ian Latus of Yellow Truck (Hull) Ltd www.yellowtruck.co.uk for which the author is very grateful. © David Elliott 2008