Cambridge Marketing review - Issue 5 by Cambridge Marketing College

CAMBRIDGE MARKETING

ENTREPRENEURIAL FEATURES Nicola Murphy: entrepreneurial spirit or marketing flair? Entrepreneurs: Friend or Foe? An insightful view into the Cambridge cluster

A TOAST To ENTREPRENEURS

FEATURES Radical redesign – would you share your coveted designs with the world? Strategy: is now the time for organic growth? What’s your next marketing role? VIEWS Death of the 4Ps! Gearing up for CRM Solutions COMMENTS Book choices for 2013 A look back in history

ISSUE 5 SPRING 2013

EUREKA

Drawing ©Copyright September 2005 Don Moyer. Used with permission. Originally appeared in Harvard Business Review Panel Discussion column

BY DON MOYER

o business activity generates more myths, delusions, and lies than innovation. We simplify the story and simultaneously inflate it with drama. We love to hear about the lone inventor, the big epiphany, and the utter triumph of a brilliant idea. But as Scott Berkun points out in, The Myths of Innovation, there’s more going on and much of it isn’t pretty. Berkun makes the case that all innovations arrive “ ... through many failures, chance events, and contrivances of human nature, but those details kill the easy romance we crave.” This dishonesty leads businesses to overestimate the pace of invention and to underestimate the fortitude required to get to market. As Harold Evans explains in “The Eureka Myth” (HBR June 2005), “The eureka moment is a hugely attractive idea, full

of drama. But the act of inventing and improving is far more often a long, hard slog. And the act of capitalizing on invention-of managing the transition from a brain wave to a bustle of the marketplace--is the really hard part.” Sure, celebrate creativity. But be honest about real-life time frames and the grind oftrial and error that accompany most innovations.

Don Moyer has collected his series of cartoons as a book, entitled 64 Drawings. It is available from Blurb at www.blurb.com/bookstore/detail/949041

CONTENTS

CONTENTS 5 EDITORIAL ENTREPRENEURIAL FEATURES

31 Are You A Commercial CMO? Bev Burgess opens yours eyes to the new opportunities being created by fast-moving changes in technology and marketing.

6 ENTREPRENEURS AND MARKETING Nicola Murphy: CEO of the multi-million pound publishing agency, River, delivers a thoughtprovoking and inspiring presentation at our 21st Annual Dinner, on the links between marketing and entrepreneurialism.

36 Distribution – Models of Business Processes and Practice, A Marketing Perspective An extract on B2B distribution from an upcoming marketing handbook by Karl Meyer.

11 ENTREPRENEUR – FRIEND OR FOE? Walter Heriott gives an alternative view on entrepreneurs with an emphasis on the Cambridge cluster.

42 Putting laughter back into learning! Ardi Kolah, author of the Guru in a Bottle® Series on sales and marketing explains why the learning experience for those starting their careers in sales and marketing should be about having fun.

15 Market Strategy, Success and the Owner-Managed Business David Molian discusses the characteristics of successful owner-managed businesses and finding your niche. FEATURES

19 A RADICAL RE-DESIGN OF Business Alan Moore takes a look at the companies at the forefront of innovation, who are taking the world by storm with their radical new business ideas. 24 Organic Growth Strategies: Back to Basics Andrew Hedley looks at organic revenue growth in this difficult economic climate from the perspective of the professional service organisation.

VIEWS

43 The Experiential Revolution Gregory Roekens gives a thought-provoking review of the 4Ps and the rise of the 4Es. 51 How do successful companies manage customer relationships today? Neil Wilkins discusses how successful companies are managing their customer relationships. COMMENTS

54 WHAT ARE YOU READING? Recommended reading.

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Submit an article to us and you could have your review in the next journal. It’s a great achievement to add to your CV and can help boost your reputation. All ideas and thoughts on marketing related issues, welcomed.

LOOKING BACK TO 1991 Kiran Kapur gives a revealing look back to 1991 – do you remember that year?

Email emma@marketingcollege.com for more details.

Publishing Editor: Emma Garland Chairman: Charles W. Nixon Contributors: Nicola Murphy, Walter Heriott, Alan Moore, Gregory Roekens, Andrew Hedley, Bev Burgess, David Molian, Neil Wilkins, Kiran Kapur, Karl Meyer, Don Moyer, Alistair Pryde, Melissa Nixon, Shane Minett, Lorna Brocklesby and Liz Hamilton. Contact: Cambridge Marketing Press 1 Cygnus Business Park Middle Watch Swavesey Cambridgeshire CB24 4AA Tel: +44(0)1954 234941 Email: emma@marketingcollege.com Website: www.marketingcollege.com Issue V Spring 2013 ISSN 2047-962X

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Design and layout by www.amandabarrett.co.uk Front cover image: AR232 Toaster by Arzum Fırrın Founded in 1966, Arzum is a leading supplier of small electrical appliances in Turkey and its neighbouring countries in Eastern Europe, Central Asia and the Middle East. Arzum Fırrın won an industrial design award in Turkey in 2008 for its innovative toaster, followed by the European Consumers’ Choice Award in 2011; a “Superior Design” award at the Design Turkey competition in 2012; and they are currently preparing to collect their latest award in Europe, the IF Product Design Award 2013. Thanks to its patented sliding-tray technology, it has revolutionised toasting. Diagrams and illustrations redrawn by Kirsty Jones

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EDITORIAL

EDITORIAL From Emma Garland, Publishing Editor of Cambridge Marketing College

I EMMA GARLAND

t gives me great pleasure to introduce this Entrepreneurial edition of the Cambridge Marketing review. I have enjoyed reading each and every one of these articles and we certainly have some very interesting and forward-looking features for you to read in this fifth edition. Being relatively new to this role, I timed my arrival perfectly as my first introduction to the great team here at Cambridge Marketing College was at the

College’s Annual Dinner, where we celebrated the College’s 21st year. At the Dinner, we were fortunate to witness a presentation by Nicola Murphy, CEO of the leading-publishing agency, River Group. You can read her views on marketing and the four different types of entrepreneurs on pages 6 to 9. We also have an interesting article from another very successful woman, Bev Burgess, who talks about the changes companies need to implement to make us marketers more commercial and close the gap in this ever-changing world. Could you be the next Chief Marketing Officer? Find out what it takes in Bev’s article on pages 31 to 35. We also look at what it really takes to be a 21st century company. People are no longer hoarding their ideas but instead sharing them and very publically too. Alan Moore gives us an insight into how a leading automotive company is setting the bar high in being that 21st century company. We have made some changes to this new edition and we are always interested in hearing your views, as the reader, so do get in touch. Likewise, if you would like to subscribe to receive the review quarterly, drop me an email: editor@cambridgemarketingpress.com or call 01954 234 941. We look forward to hearing from you soon.

Emma Garland Publishing Editor

Emma joined Cambridge Marketing College in August 2012 and quickly made her mark managing some of the College’s on-going publishing projects. She has experience in Corporate Communications, as Account Director, where she has helped hundreds of Listed companies with their IR communications, including presentations, annual reports and IR websites.

ENTREPRENEURS AND MARKETING Nicola Murphy, Chief Executive of the multi-million pound publishing agency River, was invited to speak at Cambridge Marketing College’s Annual Dinner, celebrating its 21st anniversary. She reveals a thoughtprovoking and inspiring presentation on the links between marketing and entrepreneurialism, with a few best-kept secrets to show how River became the leading publishing agency it is today.

ots of negative things have been said about entrepreneurs.

Apparently we have psychopathic tendencies. We are arrogant, unemployable and driven by a burning ambition to sell our ageing relatives for cold hard cash. We are also allegedly, nicola murphy risk takers with dysfunctional families. This one has some truth. Witness, Roman Abramovich. His mother, died when he was eighteen months old, closely followed by his father, when he was four years old. This is a little known, seldom talked about, fact when contemplating the multi- millionaire, who is worth $12.1 billion today. Yet, he spent the majority of his life, until he was 16 years old, in an orphanage. He’s now the 68th richest man in the world. So perhaps we entrepreneurs can tick the box for feeling, after a challenging start, that we have something to prove.

Do entrepreneurs have psychopathic tendENcies? Another criticism levelled at entrepreneurs is that they are control freaks and workaholics. One such is Mark Zuckerburg of Facebook. A recent book written by a former HR employee of his company, labels him a mini-Napoleon. On his 22nd birthday, all of the women in his organisation, including the one female of seventeen male directors, were made to wear a tee-shirt with his face on it. Allegedly “he wants all the women to adore him and all the men to be him!”. Seemingly, popular folk law has it that all entrepreneurs are nags. My ex-husband would concur. According to famous US entrepreneur Leonard Brody, entrepreneurs are dictatorial and excessively tenacious. They like telling you, your wife, and your dog what to do. Take a bow Peter Jones of Dragon’s Den. He’s certainly tenacious. He set up a number of failed businesses before he made money. He started at 18 as a tennis coach but he wasn’t Rafa Nadal. Undeterred, he started a nightclub and lost £200,000. He even had to move back in with his

ENTREPRENEURS

mum and dad as money was so tight. Only latterly, in 1998, did he successfully set up Phones International Group. He is now worth £400m. Try, try and try again. Do I display these charming character traits? Probably. But as well as being entrepreneurial, I’m also a marketer. With River being an agency, marketing is at the root of our business. River publishes magazines for brand owners and more recently, we also publish apps, websites and digital content. So, let me introduce River My business partner, Jane and I met at a previous publishing company, where Jane was Editorial Director and I was Business Development Director. We had one big issue in common. We didn’t like our boss and felt we could better serve clients with a blend of creativity and commerciality. Having little money we decided at the outset that we needed to stand out, in what was a maturing market. We wrote a plan, chose a name and logo. Decided to launch with as much pizzazz as £300 would cover! We purchased sixty boxes of Milk Tray chocolates and delivered 30 of those boxes to trade press media owners. We did this (genius!) by hiring a hunky actor to dress up as the Milk Tray man. The Cadbury’s advertisements (remember them?) were still on the TV in those days. He and I toured the country, dropping off these boxes of chocolates to trade media owners and we also delivered 30 boxes to Chief Executives and Marketing Directors of big organisations. Each box contained a lunch invitation and many editors and a few clients took us up on the offer. This generated considerable PR. What was most successful about the campaign, apart from the media coverage, was the fact that we won a £2 million contract within five months of setting up the company! We had secured the then, biggest magazine in the market. This was one of our more successful chocolate deliveries. Archie Norman, then the Chief Executive of Asda, was so impressed by our audacity and entrepreneurial spirit – we interrupted a Board meeting – he subsequently invited us to pitch and we got the work. So was this entrepreneurial spirit or marketing flair? If the former, what type of entrepreneurs are we? There being four types: social, serial, co-operative, and lifestyle. Social entrepreneurs are those people who want to change the world that they live in. They have an inability to accept the status quo. The founders of Help for Heroes are this type, setting up a charity to build a swimming pool for war veterans, and five years later rivalling TRBL for the UK’s best loved forces charity. Serial entrepreneurs are the people who just want more. They can’t leave it alone. Some recognisable serial entrepreneurs include Sir Alan Sugar, Richard Branson and someone less known, Marcia Kilgore. She set up Bliss Spas and sold it to LVMH for $30 million. Having moved to the UK and having had a mere three months off, Marcia set up the Soap & Glory brand – now sold in most high street retailers, including Boots and Selfridges. But with a few hours of

daylight still to spare Marcia also set up FitFlop. Go Marcia! The third type of entrepreneur is the lifestyle entrepreneur. One who sets up a business that allows him to live the way he wants to live. Witness the several thousand eBay entrepreneurs who buy and sell things from the comfort of their homes. These people tend to be defined by their need for control. They’re not going to be selling out to shareholders anytime soon as this is their life and that’s how they want to live it. Finally there are co-operative entrepreneurs. This is the box that Jane and I best sit in. Here the division of business responsibility is very clearly delineated. I’m the marketing person, Jane is the creative person and Mike, who joined us ten years ago, is the finance person. We each do different job functions and the business works well because of this.

Is it entrepreneurial spirit or marketing flair that makes a company successful? So my bit, Marketing. Relatively straight forward, right? Well, it might be but unfortunately 80% of businesses in the UK, marketing focussed or not, fail. In 2009, more businesses failed than were set up for the first time in recorded history. But River didn’t fail. We’re a marketing agency that exists, these days, to produce creative content in any medium, producing words and pictures for brands that persuade customers to have a relationship with them, and ultimately to buy products and services. Leading of course to more profit. This was the aim in 1994, and still is today. In 1994, the UK was kicking into recession and we saw that advertising sales was becoming important to clients. In those days, our competitors were using media representation agencies to sell the advertising in their magazines but producing the content themselves. Jane and I went to the two guys that ran the biggest and best of the media representation agencies and suggested we pool our resources, effectively taking this service out of the market. They duly dropped the 17 of our competitors that they worked for and River was born. Immediately, we had better commercial services than anyone else because we’d taken the best agency out of the market. Why did we call our agency River? A river is a conduit of communication. Rivers take goods and services and people from one place to another. Water fills a vessel

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In 2009, more businesses failed than were set up for the first time in recorded history.

from the bottom to the top so fills a vacuum, it’s clear, it’s honest and authentic. We liked what that said about our approach. Being open led to several business practices that were, and still are in our market, unique to River. We’ve had open book accounting from when we started. In addition, we wanted our communications to be measurable, and to this end we captured customer data and were able therefore to show results that led to a return on investment for clients. And finally, but most importantly, we wanted to be creative. What we were producing was words and pictures that were designed to engage customers to make them like and trust a brand. So creativity and understanding that brand was really important. In addition, we looked at the competition and differentiated our offer. We used traditional marketing models like Ansoff, to look at how we would adopt differentiation. We also focused on cost control, using freelancers and an asset bank approach to content. Cutting long copy content up to use on the web or in mobile marketing created a more consistent approach to marketing messaging, alongside cost efficiencies. Latterly, we’ve also expanded internationally at the behest of some of our clients and with their support, into foreign language editions. On the other side of the spectrum, we’ve also produced thought-leadership pieces. As a magazine publisher, from the beginning, we’ve always had our own magazines. So all of that good marketing stuff took us into the nineties. We had a differentiated offer talking about marketing and magazines, as part of the customer journey which was something that other competitors weren’t doing and we had a commercial message because the majority of publications that we produced were selffunding – something the rest of the market couldn’t deliver. We evolved River’s brand over the years to keep up with the zeitgeist. From ‘keeping customers closer’, we evolved into ‘magazines that drive sales’, ‘content that drives sales’ and now ‘the gold standard in compelling content’, because these days we’re Nicola Murphy and Jane Wynn at the Annual Cambridge Marketing College Dinner at St John’s College, Cambridge in July 2012. channel agnostic.

ENTREPRENEURS

WHICH TYPE OF ENTREPRENEUR DO YOU THINK YOU ARE?

Social entrepreneur

Social entrepreneurs: are the kind of people who really want to change the world that they live in. They have an inability to accept the status quo.

Lifestyle entrepreneur

Lifestyle entrepreneurs: sets up a business that allows them to live the way they want to live.

Serial entrepreneur

Serial entrepreneurs: are the people who just want more. They just can’t seem to leave it alone.

Co-operative entrepreneur

Co-operative entrepreneurs: are where the division of business responsibility is very clearly delineated between two or more people.

Read more about the different types of entrepreneur on page 7

We have our clients to thank for their help in developing this differentiated, more rounded offer for River over the years. They’ve helped us to develop products that are not magazines, using their content. They, therefore, have become our mavens. For River, marketing and entrepreneurialism are, and have always been, closely linked. This is the key to our business success, and long may it continue. Is that it though? Where do entrepreneurs go to die? Some say they don’t. They just keep going. They get a taste for it. There’s always one more good idea. Assuming they’re young enough to have the energy. The oldest entrepreneur? 98 years young apparently. Or maybe that’s just marketing…

Nicki is River’s brand and marketing specialist, holding a doctorate in brand marketing, and an MBA in strategic marketing. Before all things River, set up by Nicki and Jane 18 years ago, Nicki worked in magazines for three years and in marketing for six years at Procter & Gamble. Nicki won a Women into Business award in 1997. She is on the Board of the PPA, and runs the commercial committee of the APA. In addition, Nicki is a trustee of The Good Rock Foundation, sits on the media board of Leonard Cheshire Disability and of Kogan Page.

ENTREPRENEURS

ENTREPRENEUR – FRIEND OR FOE? Walter Heriott challenges Dr Nicola Murphy’s classification of entrepreneurship and the characteristics they need if they are to succeed, with a focus on the Cambridge Cluster.

r Nicola Murphy, the Chief Executive of the publishing company River, spoke recently at the Dinner celebrating the 21st anniversary of the foundation of Cambridge Marketing College about her views on what makes a successful entrepreneur in a serviceWALTER HERIOTT based business. My own experience of 40 years assisting growth businesses around Cambridge, including 20 years running the St. John’s Innovation Centre, leads me to challenge whether her conclusions are relevant to all knowledge-based businesses and particularly whether you have to be “nasty” to be successful. I will attempt to do this by challenging Dr Murphy’s classification of entrepreneurship and the characteristics that entrepreneurs need if they are to succeed. I conclude by arguing that UK plcs need more entrepreneurs and suggest how this might be achieved. According to the Oxford English Dictionary, an entrepreneur is “a person who is in effective control of a commercial undertaking”. The word does, however, have negative connotations; as a receptionist at the Innovation Centre once commented about one of the tenants – “He’s a typical entrepreneur, he only thinks of himself and doesn’t give a damn about anyone else!” Dr Murphy, in her talk reinforced this negative perception – “Lots of things have been said about entrepreneurs and one of them is that they have psychopathic tendencies. Another charming trait of entrepreneurs apparently is that we all have something to prove to ourselves and to others. Apparently a lot of us have family issues”. A key question is, therefore, do you have to be nasty to start up and be in effective control of a successful business? Can entrepreneurs ever be regarded in a positive way? Are they just in it for their own egos and financial greed or can they benefit the wider community in a civilised way? To answer this question perhaps we need to understand that there are different types of entrepreneur with different characteristics. Dr Murphy has argued for a fourfold classification: • Social; • Serial; • Co-operative; and • Lifestyle. Social entrepreneurs, she defines, as people who want to make the world a better place or “do good”, for example the founders of ‘Help for Heroes’. Although such people do exist around Cambridge, Martin Clarke of Citylife and Anne Cotton of

CamFed for example, the majority of our entrepreneurs come from a science background, want to see their technical ideas realised and thus benefit the community as a whole. They are, however, looking for financial reward, though typically they are neither seeking a purely financial return nor are they entirely philanthropic. In a very British way, perhaps, they want to see fair play i.e. be appropriately rewarded for the contributions that their ideas or innovations make to society. Serial entrepreneurs, according to Dr Murphy, are people who “just want more” and she cites the example of Alan Sugar. I would argue that he is more “capitalist” than “entrepreneur” – he seems very self-centred with little regard for his employees. His fulfilment comes from the act of making money for his own benefit which he does over and over again. In a Cambridge context, Hermann Hauser and David Cleevely are often quoted as examples of serial entrepreneurs but they are really serial investors who take minority stakes in a number of enterprises and are not, therefore, in effective control of the commercial undertakings in which they invest. Such people are often motivated by social agendas in addition to commercial ones – they want to see their community, particularly the University of Cambridge in this case, benefit as well as adding to their personal wealth by their activities. Dr Murphy identified “co-operative entrepreneurs” – people in charge of different activities within a business rather than the business as a whole. I am not sure that, given our definition, such people are entrepreneurs; they are certainly enterprising and UK plcs need to increase its stock of people who are innovative, positive and who can help create, rather than simply redistribute wealth by their activities. They are not, however, by definition, in effective control of the businesses and should not be classed as entrepreneurs. Most people who run businesses are, according to Dr Murphy, “Lifestyle” entrepreneurs “who set up businesses which allow them to live the way they want to. They do not want to change the world or have a multiplicity of activities”. The majority of this type of entrepreneur is in the service industries operating in sectors with limited markets and their businesses are usually self funding and remain small. “Lifestyle” entrepreneurs, as defined above, are important to the economy as they sustain employment but what UK plcs urgently need is more “gazelles ”or fast growth businesses that can create wealth. Cambridge is often cited as a hotbed of such businesses but in truth most of the 1,200 companies that make up the hightech cluster are in fact “lifestyle” businesses rather than potential ARMs or Autonomys. Lifestyle and gazelle businesses have different structures and require different management styles if they are to succeed. The business model for gazelles is normally driven by the need to obtain equity if the business is to get off the ground and progress. These companies are innovative and tend to be producing totally new products (including software) rather than services.

Do you have to be nasty to start up and be in effective control of a successful business?

The amount of funding required to progress from idea (concept) to revenue generation is usually beyond the resources of the founder and his immediate family or friends, hence the need for institutional venture capital or business angel finance which seeks commercial returns. Such funding requires an exit within 3–5 years either through a flotation or trade sale. The founder is usually a scientist by background and has not normally acquired business experience. The needs of the investors and the time frame in which they are operating, means that the founder often does not have the time to develop the skills required to be in effective control of a business. It is the investors who are in control, they hold the purse strings, and they often bring in professional managers who are enterprising rather than innovative, to achieve the commercial objectives of the business. The founders then either retire or become serial investors or remain as chief technical officers responsible for the new product development in the business. Entrepreneurs like Mike Lynch, who took Autonomy from “the cradle to the grave”, are very much the exception rather than the rule. In a Cambridge style knowledge based “high tech” economy it is perhaps, therefore, more helpful in understanding the way the ecosystem works to differentiate between: •

Innovators – those who found a business and take it from start up to external funding. Such people are not true entrepreneurs because they are only in control at a very early stage in the organisation’s life when they are running a technical project rather than a commercial operation.

•

Serial Investors – those innovators who have made money from exits and recycle a proportion of it by investing in early stage and start up businesses. Such investors do not normally run the businesses but their motives, although commercial are also social i.e. they provide high risk funding to businesses in their community and the community also benefits if the investment is successful.

ENTREPRENEURS

Do entrepreneurs really differ that much from enterprising people working for public companies?

•

Capitalists who are in business to satisfy their own egos and to purely make money for their own benefit. Such people do exist in Cambridge but are very much in the minority.

•

Genuine entrepreneurs who are actually in control of commercial undertakings. These can be lifestyle businesses or ambitious gazelles that need external equity if they are to grow fast. Following external investment, gazelle businesses will often be run by professional managers, brought in by the investors, rather than the founding entrepreneurs who are left to focus on the technology or who exit and retire, start up again or become serial investors.

Dr Murphy highlighted, from her experience, the characteristics of successful entrepreneurs. They: • do not care what people think of them • are thick skinned (they never cry at work) • never take no for an answer and always find a way round a problem • are good, natural communicators • act decisively • are visionaries and do not like crossing ‘t’s and dotting ‘i’s • put the needs of business above those of individuals (they cannot afford to be sorry for those with problems) • get excited by a good idea • are not afraid of risk • understand the need for branding and differentiating the business She summarised her views of entrepreneurs as “they just keep going” and “people tend not to like them”. I believe, however, that Dr Murphy is describing the characteristics of capitalists rather than entrepreneurs and in my experience very few Cambridge businesses are actually run by such aggressive people. Lifestyle entrepreneurs wish to be in control of their own destinies and most behave in a civilised way – they want to be your friend! Gazelles are under more pressure because of the

demands of their funders but often are as interested in resolving technical challenges or wanting to see their products benefit society as they are in maximising financial returns – they are, therefore, more friend than foe. Entrepreneurs, generally, differ from enterprising people working for public companies because everything is down to them; they cannot “pass the buck” and success or failure is entirely in their own hands. This does not mean, however, that they need to have “psychopathic tendencies”. The majority in my experience care about their employees and wish to create a positive and sustainable working environment in which people can flourish and are able to positively contribute to the business. An entrepreneur’s first loyalty, however, must be to the sustainability of the business and there may be occasions when the survival of the organisation overrides the needs of individual employees. On an ongoing basis, however, the entrepreneur needs his employees on side if he or she is to maximise the chances of success. An entrepreneur is, therefore, more friend than foe and there is no reason to think that managing in a participative and consultative way, rather than by shouting and giving orders, does not produce a better return for the business. A successful entrepreneur’s management style is, perhaps, best described as that of a benevolent despot. In summary, my experience in the Cambridge Cluster is that successful entrepreneurs: • are indeed decisive, innovative and assess risk; • understand the business need to be profitable but want their products or services to be of genuine benefit to society; • do care what people think but have to act in the interests of the business if it is to survive. They do not mind being unpopular but genuinely care about creating a good working environment and believe this contributes to the success of the business; • appreciate that there are circumstances when their own views are wrong and need to be revisited; and • although visionaries they have to ensure that they retain an eye for important detail (Is this where the Bankers went wrong?). The UK needs all the successful entrepreneurs it can get, particularly in the current financial climate. It remains a national problem that although we are good at new ideas, we do not benefit as much as we should from our innovation – Trinity College may well have produced more Nobel Prize winners than the whole of France but why do we not enjoy a significantly better standard of living than the French?! We need to translate more science into successful commercial activity and, therefore, need to promote enterprise and create more successful entrepreneurs in the UK if we are to escape from our present “slough of despond”. So what is to be done? In the first instance we should ensure that our education system is fit for purpose from “the cradle to the grave”. Starting with primary education we should look at the way in which the key characteristics

of enterprise are promoted. Not everyone wants, or is able, to run a business but everybody can and should be encouraged to think and act positively in an enterprising way. The importance of marketing, branding and selling needs to be better understood by society in general and entrepreneurs in particular. Gazelles often place too much emphasis on the technology and its clever features without reference to market needs or customer requirements. Universities need to be more involved in promoting and teaching enterprise and entrepreneurship. Anglia Ruskin University now offers a B.A. in Enterprise and has targets for the numbers of businesses that its graduates should create. Other universities, even Cambridge, should review their activities designed to promote enterprise and entrepreneurship. It should also not be too much to hope that academic research into business issues should not only be written in a language that is understandable to the entrepreneur but should be of some practical use too and assist in the process of wealth creation. As a nation we need to stimulate a culture of enterprise and the media should be encouraged to find a way to promote entrepreneurship as we have defined it, rather than capitalism and the cult of “You’re fired!”... Aggressive rudeness may make entertaining television but, as I have tried to demonstrate, there are better ways of managing commercial organisations. Dr Murphy is to be congratulated not only on running a number of complex businesses but also in stimulating thought about entrepreneurship. She is certainly successful and in the UK more of us need to follow her example and work smarter and in a more enterprising way if we are to recover from our present difficulties and become more competitive in the global economy. No one is “owed” a living and lacking natural resources we have to make the most of the talents of our people if we are to remain competitive. Entrepreneurs are our friends and we need more of them.

You’re fired!... Aggressive rudeness may make entertaining television but there are better ways of managing commercial organisations. 14

successful entrepreneurs: •

are indeed decisive, innovative and assess risk;

•

understand the business need to be profitable but want their products or services to be of genuine benefit to society;

•

do care what people think but have to act in the interests of the business if it is to survive. They do not mind being unpopular but genuinely care about creating a good working environment and believe this contributes to the success of the business;

•

appreciate that there are circumstances when their own views are wrong and need to be revisited; and

•

although visionaries they have to ensure that they retain an eye for important detail (Is this where the Bankers went wrong?).

Walter was the Managing Director of St John’s Innovation Centre Ltd from 1990 until his retirement at the end of November 2008. The Innovation Centre, based in Cambridge, is regarded as a model for incubators, particularly those linked to Universities, both nationally and internationally. In 1999, Walter was awarded an OBE for services to businesses in the East of England and in 2002 was the Cambridge Evening News “Businessman of the Year”. In 2006, he received the Queen’s Award for Enterprise Promotion and was appointed Visiting Professor at the University of Hertfordshire. In 2008, Walter received an honorary doctorate from Anglia Ruskin University. Following his retirement from St John’s, Walter formed his own Consultancy, Herriot Associates and in the public sector has worked with EEDA, ARU, the University of Cambridge and UEA where he chairs the Enterprise from Innovation Board. Private sector clients have included Carter Jonas, Oxford Innovation and Finance East. He is also a non-executive director of Melbourn Scientific Ltd and Grant Instruments Ltd and has recently been appointed to the Board of the Low Carbon Innovation Fund. In 2010, Walter received an award from the Cambridge News for his outstanding contribution to the business community.

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Market Strategy, Success and the Owner-Managed Business David Molian, Director of the business Growth Programme at Cranfield School of Management discusses the characteristics of successful owner-managed businesses and finding your niche. INTRODUCTION ow here’s a thing… roughly 98% of businesses in the UK are small or medium-sized enterprises, and between them they employ around 60% of the workforce. Most of these businesses, in fact, employ no-one, apart from the owner David Molian and by the time you hit 10 employees or more, the number of firms starts to tail off sharply. Above 50 it is in steep decline. The same pattern is repeated across all advanced economies. Most businesses start small and stay that way. Owner-managed firms that buck the trend and do grow significantly have a disproportionate impact on the national economy: a series of surveys by NESTA (the National Endowment for Science, Technology and the Arts) found that the 6% of the nation’s firms with 10 employees or more that grew consistently at 20% or above – measured by sales or headcount growth – for three years created 50% of the net new jobs. That 6% translates into between 10,000 and 25,000 firms, depending on how and when you count them, out of a national stock of 4 million1! These ‘gazelles’ as they are known to the research community are few and far between, and every national government desperately wants to create more of them. In the last fourteen years, I have worked with hundreds of ambitious owner-managers on the Business Growth Programme at Cranfield. They constitute the gazelles of today and tomorrow and many have gone on to create significant, well-known enterprises, such as GoApe! Hotel Chocolat, Fitness Express and Currencies Direct. I and my colleagues have studied and observed these businesses closely and in this article I will share with you some of our conclusions about marketing and entrepreneurial success. Before we start, a brief word on academic research and its limitations. The vast majority of research conducted by marketing academics is derived from the domain of corporate business, and the precepts embodied in the standard textbooks on marketing are also based on identifying best practice in big companies. Most of my business school colleagues who teach marketing gained their practical experience in large corporates (I gained mine in advertising and marketing consultancies servicing the accounts of big customers). Without wishing to impugn the validity of the received body of marketing wisdom, I would say

http://www.nesta.org.uk/publications/page_3: see Vital Growth

To go beyond providing a living, a sustained and consistent appetite for challenge, huge amounts of willpower and the stamina of the marathon runner, not the sprinter is required.

merely that its application to the owner-managed business is not a perfect fit. Much classical marketing theory is grounded – often unconsciously – on assumptions of scale, capability and resource which are absent in the typical owner-managed business. To take but one example, many of the businesses with which I work on a daily business make little or no distinction between sales and marketing, and frequently have the same people doing both activities. To achieve their growth ambitions, the company founders will need to formalise and codify these processes, (without losing the entrepreneurial spark that informs the business) – but in the meantime they are doing very nicely, thank you. The observations in this article derive in part from surveys of our customer base and other owner-managed business populations but mostly from direct observation and interaction. We report what successful growers do, rather than what they ought to do. Characteristics of successful owner-managed businesses Aside from considerations of marketing strategy, owner-managed businesses that grow successfully exhibit other common characteristics. For one thing, the founders actively want to grow. That may seem like stating the obvious. In reality though, many small business owners pay lip service to the notion of growth, relatively few are prepared to do what it takes to deliver that. Most small businesses provide their owners and perhaps a handful of employees with a living, but nothing more. To go beyond that requires a sustained and consistent appetite for challenge, huge amounts of willpower and the stamina of the marathon runner, not the sprinter. Not everyone is cut out to live their life like this. For another thing, it is ultimately the senior management team that will determine how far and fast the business grows. If the ownermanager lacks the ability to create and empower that team in the first place, the potential of the business will always be capped.

The focus, however, in this article is on marketing and so let me state a general assertion about what it takes to succeed as an entrepreneurial business, by which I mean a high-growth business that creates enduring value for the founder and other shareholders. The foundation stone of every such business that I know, is the identification and occupation of a sustainable, defensible market niche. This applies across the board: whether the business is B2B, B2C, whether it is bricks and mortar or virtual, domestically-focused or born global, high tech, low tech or no tech. For entrepreneurs who have given this little thought before, I pose the question as starkly as possible: in what way is your business better or different? Some can answer that question immediately, citing a specific advantage or set of attributes which are impossible or difficult for competitors to replicate. (The potency of this competitive advantage is frequently overestimated, but the qualities of over-optimism and mild self-delusion are vital in getting entrepreneurs through difficult times in the lives of their businesses.) Most entrepreneurs struggle for that elusive USP, however, some because they cannot quite articulate it but they know that it is there, and others because they have not (yet) developed clear, identifiable points of difference. The importance of niche derives from two self-evident facts of business life. The first is that starting and sustaining a new venture is inherently difficult, and most businesses will fail within the first ten years of their existence. Conversely, those that survive will have a disproportionately greater chance of surviving the next ten years. Unless there is something distinctive about what you are selling, why should someone a) buy from you in the first place; and b) continue to buy from you in the future? The salience of this is underscored by the second fact of business life, namely that – in advanced economies at any rate – most markets suffer from over-supply, and competition is rife. There are, of course, exceptions to this. The early adopters of embryonic technologies – PC software and mobile phones in the 1980s, for example – were prepared to put up with bug-ridden, crash-prone programmes or carry bricks around with them because they were desperate to get their hands on a scarce resource. But the early and late majorities wisely held off until they got something that worked reliably and conveniently. And in the shake-out between early and later-stage adoption numerous suppliers went to the wall2. Finding and building a niche Some important implications flow from the central importance of finding and building a niche position: Entrepreneurs frequently underestimate how long it takes to establish their market position Outside information technology markets, which have timescales 2 A great example is provided in the director’s cut of Blade Runner, which features advertising signage for hot technology brands of the 80s – such as Wang and Commodore – which never quite made it to the Los Angeles of the future as envisaged by the film-makers. You won’t see Microsoft (established 1975) or Apple (1976).

ENTREPRENEURS

NEW

Avoiding premature diversification The corollary of the previous point is that many promising ventures never fulfil their potential because the founders dilute their focus too early in the life of the business. They are enticed or seduced by other opportunities and find themselves drawn into a position where they both neglect their core customer base and cannot give sufficient time, attention and resource to their new target market. All customers, however, are not created equal and what looks on the surface like a greener pasture is all too often a far more difficult and challenging environment than the business owner envisaged. For the small business owner the classic trap of this kind is that afforded by the contract with the big customer, especially a major retailer. Cobra Beer, a business which attended the Business Growth Programme in the late 1990s, focused for nearly a decade on the tandoori restaurant sector. The company built their brand, extended their product range, and secured a loyal consumer franchise in what was a semi-protected niche. Only when their roots were deep did they migrate to new channels, first into off-licences, then into supermarkets. By the time the brand hit the retailers’ shelves Cobra was sufficiently established to deal on terms that were acceptable to the business; and if, for whatever reason, the brand had been delisted, the loss of one big account would not jeopardise the business as a whole.

Market development

Diversification

EXISTING

all of their own, it generally takes longer and costs more than the founders anticipate. Pret à Manger spent four years getting the first outlet right before opening their second. Hotel Chocolat went through three brand incarnations and nearly fifteen years of experimentation before perfecting today’s extremely successful business model. Business-to-business operations are no different. My questioning of businesses that participate in the Cranfield Business Growth Programme suggests that it takes at least seven years before the typical owner-manager fully understands the markets he or she serves and what makes their business tick. Entrepreneurs often overlook opportunities to deepen and broaden their niches If we think in terms of the Ansoff matrix (Figure 1), niche-building is represented by the bottom-left box of market penetration. In practice this means selling more of what you currently do to your existing customers, and finding others who are like them. We have developed a term for this at Cranfield: squeezing the lemon. When adding lemon juice as they prepare food most people will slice a lemon in half, partially squeeze one half and discard it, and save the other half for further use (typically wrapped in cling-film and stored in the fridge). There are two salient feature of this: one, the lemon is only partly squeezed; two, the unsqueezed half is rarely used but eventually discarded when it is long past its shelf-life. So it is with customers. All too often we extract just enough value for the current transaction, then mentally consign them to storage for the next time – and then find that while we have forgotten them, they have gone sour on us. Why does this happen? Our observations suggest two factors at play. First, entrepreneurs are as prone as the rest of us to distraction. Growing a customer’s account is a systematic, painstaking process which may well be less enticing than a bright, shiny new opportunity somewhere else. It is usually, however, more profitable in the long run. Second, sales people are often incentivised primarily to develop

new business, not grow existing accounts. Not surprisingly they will follow the money, but you will end up with a leaking bucket of customers which needs constant replenishment.

Market penetration

Product/service development

Existing

nEW

MARKET

Growing a customer’s account is a systematic, painstaking process which may well be less enticing than a bright, shiny new opportunity somewhere else but it is usually more profitable in the long run.

PRODUCT/SERVICE

Figure 1 The Ansoff Matrix

Solve the fundamental question of “what is my niche?” and clarity over marketing strategy and activities usually drops into place. When I see a business with disconnected and muddled sales and marketing it is usually the case that the root problem is uncertainty over “who is the customer” and “why are they buying”. Where people are uncertain, they hedge their bets. Protecting the niche The number of successful strategies a small business can pursue is limited. Very few can compete on low cost, because they have purchasing economies of neither scope nor scale. That leaves in effect three routes to success: •

the capacity to innovate;

•

internal efficiencies; and

•

the ability to inspire customer loyalty.

The outstanding businesses that I have observed tend to do one of these things supremely effectively, and perform well above average across the other two. Looking around a Hotel Chocolat store, for example, will tell you that this business has a remarkable ability to innovate when it comes to creating and selling different kinds of chocolate and by doing so reduce the seasonality this sector typically suffers. Hotel Chocolat is also a very efficiently-run business that commands great customer loyalty, but innovation is ingrained in the company’s DNA. Successful growers are clear about what makes them successful and, once established in their niches, look for continuous improvement at the margins. This capacity to focus relentlessly on constantly enhancing small, but important, points of difference compared with the competition is critical to continuing to grow. Sometimes this means investing in improving the core product or service, but it might equally mean enhancing communications, routes to market or market presence. Until 2003 Hotel Chocolat was a catalogue and website-based business, but founders Angus Thirlwell and Peter Harris were convinced that without a retail presence their growth would be permanently limited: at the time only 50% of their target British consumers were prepared to buy on-line or via a catalogue. Far from cannibalising sales from other channels, the company’s retail presence has raised consumer awareness and spurred sales across the board. Making money is simple, but it isn’t easy Our surveys suggest that as many as nine out of ten businesses that grow successfully consciously pursue niche-building as their 3 There are exceptions to this rule, such as businesses in markets which are disappearing or collapsing, but they are a minority.

number one market strategy. They have taken on board the value of the maxim quoted above, attributable, I believe, to John Bloom of Rolls Razor fame. While he may no longer be a household name, his invaluable aperçu survives. Like so many basic truths of business life it is easy to grasp but hard to live by. The arithmetic of making money is disarmingly simple. The mechanics are not. In this context, the enemies of success are unnecessary complexity and ill-considered risk. Nothing is so easy as to introduce complexity into a business – MBA students positively thrive on it. Complexity, however, all too often equals extra cost but no added value for the customer. For a business with aspirations to grow, the art of continually weeding out unnecessary complexity and simplifying wherever possible is essential. Nowhere is this more important than in the case of customer transactions. GoApe!, a hugely successful business which is a leader in the outdoor adventures field, has reduced the number of steps in their online booking process from seven to three. Noone had set out to make booking a visit to a GoApe! site overly complicated: it just grew along with the business. So it is with business and market risk. If we return to the Ansoff matrix, it is apparent that as a general rule the quadrant of least risk is market penetration, or selling more of what you currently do to existing customers and others who are like them3. The argument is self-evident: the closer you stay to selling what you understand to customers you know, the smaller the margin for error. Conversely, the quadrant of greatest risk is top-right, diversification, or as one of my colleagues bluntly describes it “selling stuff you don’t understand to people you’ve never met”. The use of plain English conveys the essence rather better than six syllables derived from the Latin. And the strategies of market and product/service development, or a move into adjacencies, carry with them a correspondingly lesser degree of risk as the business keeps at least one factor in the equation constant. There is a widespread perception of entrepreneurs as people who actively seek and take risks. Those who succeed, in our experience, are those who learn how to manage risk and reduce it to an acceptable level wherever possible.

David Molian is Director of the Business Growth Programme portfolio at Cranfield School of Management. He trained in consumer goods advertising and has served on the faculties of Imperial College as well as INSEAD and London Business School as visiting faculty. He has founded and sold businesses, serves on company boards and advises company founders. He is one of the UK’s foremost authorities on business growth and entrepreneurship. The views expressed are his own. He can be contacted at d.molian@cranfield.ac.uk.

Alan discusses the radical changes companies are making to stay one or several steps ahead of the game in becoming a 21st century company.

FEATURE - MOORE

A RADICAL RE-DESIGN OF Business

ecently I was invited to Shanghai to speak about the transformational design of businesses at Radical Design Week – Shanghai. In the Heavy Metal Seminar (heavy industry rather than a debate about Metallica!), my topic was car ALAN MOORE manufacturing and how, with state of the art 3D fabrication tools, combined with networked participatory cultures and tools, and insights into rapid innovation and build practices, a car company called Local Motors can build cars five times faster at one hundred times less than the capital cost and sell its first production vehicle, The Rally Fighter, at $79,000. This is radical transformational business design, meaning that Local Motors is perhaps one of the most comprehensive examples of a revolutionary approach to the design, engineering, manufacturing, sale and marketing of cars. But don’t worry if you are not in the automotive industry this is a story about the company of the future. Designing high performance organisations I made the point that companies today can change their shape, capability and performance by rethinking and redesigning all its core processes; its factories (the Local Motors factory was rated by Jalopnik in the top ten of most impressive car factories in the world), R&D, sales, marketing and production – this is whole systems design, that represents an industrial ecology, not a series of boxes and silos. Moreover, it is much less costly to set up, run and maintain it also enables the company to invest its energies into high quality design and production. An open networked innovation platform Local Motors runs competitions to innovate. In one year, for its first vehicle competition, 44,000 designs were submitted to Local Motors and 3,600 innovators shared their knowledge and insights. No one company can hire that many people, (and these competitions were not run on a cash prize basis). Which leads one to ask the question: what inspires and attracts so many to want to participate? Through its open participatory platform now called ‘The Forge’, Local Motors has collaborated in automotive innovation with DARPA, the US Military research agency, co-designing and building a fully functional prototype of a Combat Support Vehicle in three and

a half months. Normally such a process would take years. Even large car manufacturers have turned to Local Motors, such as BMW, who are currently running an Urban Driving Experience Challenge. So Local Motors becomes more than just a car manufacturing company. It is an automotive innovation platform and it is a true community. Local Motors attracts because it is creating and releasing social and intellectual capital into a common pool. This open innovation platform is counter intuitive to many assumptions about how businesses are run, and how intellectual products are created and protected. The economics of sharing: open legal frameworks Normally all this innovation would be locked down with copyright law that seeks to limit the dissemination of intellectual property. However, all of the Local Motors’ designs created within the common pool are freely available to access and download. It might seem a radical step for an automotive company to operate this way but what is being proven is that operating under Creative Commons legal frameworks has exponential benefits that can radically accelerate the innovation process, whilst dramatically reducing the costs of innovation. Creative Commons is a legal framework that is based upon what I call the economics of sharing – it is a set of permissions allowing creative work or intellectual knowledge to be shared and used in a number of different ways. For example, you can share this work, but you must attribute who first created it, you may not alter the work (you may alter the work), you may (or may not) use this work for commercial gain, etc. Creative Commons enables the sharing and dissemination of knowledge, encouraging diversity and learning whilst stimulating commercial activity. It was specifically created as a response to a broken copyright model that was not stimulating cultural expression and commercial activity. The Creative Commons legal framework understands sharing is a good thing and that mutuality is key to establishing a richer, more vibrant world economically, socially and culturally. Manufacturing innovation The online communities of innovation, although impressive, are part of an industrial ecology that is designed to be lightweight, adaptive, and highly efficient. Local Motors builds micro factories where one vehicle design is built; it works with the Penske Group for automotive parts, supplies pre-fabricated frames, chassis, bodies; and uses 3D printing in its manufacturing process. And, when you buy your Rally Fighter you go to the micro factory spending 6 days with a Rally Fighter Build Mechanic who is building your car. Building your own Rally Fighter means you bond with your Rally Fighter, which means you are far less likely to default on repayments, and the cost of the build process is transformed into a memorable experience for each and every customer.

This is radical, transformational business design, meaning that Local Motors is perhaps one of the most comprehensive examples of a revolutionary approach to the design, engineering, manufacturing, sales and marketing of cars.

These are the takeaways that make this company so fascinating: • it fundamentally changes the relationship to supply and demand by rethinking and redesigning the process from conception to production; • it harnesses a distributed knowledge network which is both hyperlocal and superglobal; • it makes excellent use of open source and Creative Commons in the business; • it makes a clear point of being green and sustainable; • it innovates through engaging enthusiasts who are passionate about car design and engineering; • it is high velocity: this company can design and build a car five times faster than a conventional manufacturer; • it uses competition as both risk mitigator and innovation accelerator; • it is lightweight; built to be adaptive and flexible; • it is less capital-intensive than its conventional peers. Normally, it takes $200m to take a car from conception to full-scale

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NSL economics

Risk mitigation

Design

Engineering

Cocreation Green

Local Motors vision

Competitor

Flex Customised manufacture

weight

Non-traditional VC Funding

Networked thinking and design

Participatory cultures

Creative commons

Adaptive Literacy for transformational Lean design LightLocal and global

Micro factory

Company as a community and (media) platform

Participatory media

Identity

Participatory Community tools

Open source Online

Real life

Open API’s

Figure 1 Local Motors, a child of its time.

•

production. Local Motors achieved the same result with £1.5m. That is 100 times less capital; it fosters regional development. Rather than building another car plant, Local Motors is building micro-factories, so that money flows into local communities, and creates local jobs; and finally learning is seen as a constant daily process. The organisation is a learning organisation: learning to evolve and to grow and learning what works and what doesn’t.

Local Motors is a great example of a lightweight, flexible and adaptive business that can work at velocities that are unprecedented, and where sociability is embedded into the very fabric of the process. The company is built around community; it is also a media platform in its own right, and it has identified mutuality as the key business strategy. As Wassily Kandinsky said ‘every work of art, is a child of its time’.

To be part of the future you have to hack it In 2006, IBM produced a report called ‘The enterprise of the future’. The survey of CEOs revealed that 8 out of 10 CEOs saw significant change ahead and yet the gap between expected levels of change and the ability to manage it had tripled. Why? I would argue these leaders did not have the means to see or did not want to acknowledge an unfolding story, that we are decoupling from a linear industrial society and so were not able to embrace, nor articulate the emergence of new organisational structures, legal frameworks, new production and design processes, nor the underlying societal trend that seeks greater mutualism, opportunity, freedom, diversity, and empowerment, that are in direct contrast to the current state of our world. The firm of the future and the Human-OS This is important to explore further – the firm of the future is going to be designed around human systems and the needs of humanity,

Local Motors attracts because it is creating and releasing social and intellectual capital into a common pool. not industrial ones – what I call the Human Operating System. This OS is the key driver to the systems change we are witnessing. Of course the firm of the future will be competitive, but it will also be purpose and values-led, as in the case of Local Motors where it asks itself, ‘is what we create for the collective good?’ Why? Because this Human-OS wants greater opportunity, greater freedom, greater empowerment, a revitalised sense of justice, a world where mutualism and participatory cultures are the default setting, where openness is seen as resilience and diversity is understood as a good thing, where we have greater autonomy and that seeks a greater aesthetic in everything we do: Local Motors is testament to that. It is as easy to make something beautiful as it is to make it ugly. So why choose the latter over the former? In this non-linear world, companies and organisations premised upon the old orthodoxies, must think and embrace the unthinkable and work out how they innovate to survive. Whether we survey the political, media, engineering, NGO, educational or healthcare landscape we can increasingly see new ways in which we are responding to the challenges of living in a more complex world. Describing the destination you want to get to Companies facing volatile and challenging times need to be able to describe a new destination. And to get there, they require a set of design principles and navigational tools. These are some of the navigational tools that I believe will help companies discover and create a best possible future: Whole systems: companies need to learn how to deal with a more complex world by being able navigators and to do that they have to think in whole systems. For example, the World Food Programme uses systems-thinking to describe the interconnectedness of the environmental, economic, social and political dimensions in the Sudan, producing a richer narrative and world context enabling them make more meaningful mission critical decisions.

Literacy and prototyping: companies must learn to become adaptive and to do that they need to be able to evolve their literacy of new tools, processes and capabilities. To achieve that they have to learn how to prototype internally and evolve a culture which supports such practice. Such practice allows new innovative forms to be identified and created that can dramatically reduce start-up costs, running costs and wastage, and significantly improve the lives of those that those forms, products or services touch. Openness is resilience: Companies of the future will be far more open. Nature thrives because it is an open system that encourages diversity to flourish. From a business perspective openness is cultural, it is a process, accommodates legal frameworks impacting on patents and approaches to business and relates to technology. Some examples of the language of openness are: open innovation, open legal frameworks, open data, open APIs, open business models, open organisation, open source, open eco-systems, mutuality as a business strategy. Participatory cultures and tools: the organisational performance of 21st Century companies will come from their ability to design for and effectively employ participatory cultures as Local Motors have done to great effect. I have chosen the word ‘performance’ because, for example, participatory cultures can accelerate innovative practice, enable greater flexibility, deliver a more lightweight organisation, become purpose and values led, harness collective intelligence evolving into the learning organisation which learns every day, and reduce the bottom line cost of running an organisation. Participatory cultures tap into the core DNA of what motivates human beings which can unleash their full creative potential – in doing so, social capital, intellectual capital, and financial capital can be created all at the same time. The crafted organisation: is built upon the concept of craftsmanship. Conventional organisations are designed to run at 100% efficiency, and that is fine when the world is in sync but when it is not it is a recipe for disaster. Think Detroit, Kodak, Nokia or the entire music industry. Therefore, organisations need a culture of craftsmanship: the process of constant exploration of new techniques, process, language, ideas, models, patterns and systems. It is in fact a description of a creative process that ultimately delivers the ability to design for transformational change that is no longer identified as risky, but relevant and necessary – the larger question then becomes one about execution, rather than why not? This is how Local Motors, for example, was able to develop such a high performance company. Craftsmanship requires organisations and the people that populate them to be open to new ideas, techniques, tools and processes; for the craftsman to close his mind to the new, or new ways of doing things, is the greatest risk he will take. The Craftsman

FEATURE - MOORE

possesses the ability to bring two unlikes together in close adjacency and recognise a pattern or a new possibility – this is the true act of creation of Local Motors. The craftsman must combine technique and expression so that he is also able to act intuitively. This can only happen when he possesses deep or what is called implicit knowledge. Rather than acting only upon empirical information, the craftsman’s ultimate act is one of unique expression which can only be delivered through the mastery of these skills. So the craftsman has a creative mind, creating fresh, conceptual blends, novel ideas, and artefacts, all stemming from an original and autonomous position, showing awareness of the cultural meaning of events, expressing playful and passionate dedication to think and act beyond the familiar. The craftsman is able to inspire and release the potential of others, by expressing ideas and joyfully sharing. The craftsman also knows how to deliver quality without it necessarily costing the earth. This then leads on to the idea of whether creativity is a resource or a competence. The organisations from a linear world which are designed to function at 100% efficiency, have little scope to also be creative organisations, as this requires room for reflection, deliberation, conversation, trying stuff out. Also industrial organisations ideologically fear creativity – anything deemed ‘creative’ is outsourced – but for the craftsman, and the crafted

By 2020, half the firms that currently exist will have become extinct.

organisation, creativity, to be creative, to think and act creatively is something that is a fundamental part of what makes them who they are. Companies need to embrace a creative entrepreneurial spirit Now is not the time to pull down the shutters, and attempt to squeeze the last ounce of efficiency out of an ailing economic system – now is the time for creative entrepreneurial expression and to explore ‘what’s next?’ for businesses looks like, because by 2020 half the firms that currently exist will have become extinct. It was the ability of the entrepreneurs or groups of dispersed individuals or situated communities to apply innovative thinking and action that enabled them to adapt to ambiguous, challenging and dangerous situations. They were able to identify a new pattern, a new way of doing things – which was not seen as risky, but eminently doable. Consequently they have all transformed aspects of healthcare, economies, society and politics. There is indeed artfulness, an underlying creativity that is able to operate because the creators have all allowed themselves to imagine what others thought to be impossible. Not because they think it is a nice thing to do, but because there was a very pressing need – in essence, all obstacles must be overcome. They had to design for transformation.

Alan is the founder of the innovation company SMLXL, he sits on the “board of inspiration” at the Dutch Think Tank Freedom Lab. He acts as “Head of Vision” for the Grow Venture Community; is a board advisor at the crisis management NGO Ushahidi; and is as a special advisor to a number of innovative companies and organisations including publishing, mobile, the theatre and finance. He mentors through the Springboard entrepreneurial mentor programme and writes for the Huffington Post. Alan Moore’s invaluable and unique creative insights present us with an alternative way of working and existing – a better way – in which “participatory leadership” is the new operating system of the workplace where wellbeing and creating value for the collective good is the new currency of our economy. He articulates what most people are experiencing: dissatisfaction with their conditioned existence, their tick tock life which they did not choose but rather inherited. Through his book and project “No Straight Lines” Alan joins up the dots of what he calls our non-linear world and splendidly paves for us a new future which is accessible to everyone through innovation, creativity and craftsmanship. By what we make, who we make it with and why we would be motivated to do it in the first place. >>go to page 55 for a review on Alan’s book.

Organic Growth Strategies: Back to Basics This article, by Andrew Hedley is written from the perspective of the professional service organisation, and the commercial law firm in particular but it is more widely applicable across other service sectors, as well as having the capacity to inform the service-component accompanying product marketing.

he challenging market conditions of the last four years mean that organic growth is a significant issue for many organisations. My own practice is focused on the professional service sector and commercial law firms in particular. This particular market has suffered from ANDREW HEDLEY the pincer squeeze of economic recession together with the deregulation of the legal services industry (as a consequence of the Legal Services Act 2007). Increased competitive pressures created by new (non-law firm) entrants and the rise of substitute products have combined with sluggish market conditions to create the perfect storm. One consequence has been an increase in law firm failures and a sharp upturn in merger activity as forces for market consolidation come fully to bear. This consolidation activity means that some firms are achieving scale very quickly through inorganic means. However, the need for strategies to deliver genuine organic growth remains high across the market. In considering the subject of growth through the eyes of the marketing strategist we will most closely focus on revenue growth and strategies for achieving this by taking both external and internal perspectives. Expressed mathematically, revenue growth has two drivers: Change in Revenues = Change in Sales Volume x Change in Unit Price For revenue growth to maintain an upwards trajectory, changes on the other side of the equation must be net positive. This does not mean that sales volume and unit prices must both increase but one certainly has to. If the other operand holds steady then revenue will grow. However, if market pressures are such that one decreases then any revenue growth will be arithmetically dependent on the magnitude of the positive movement of the other, whether it be volume or price changes. It is logical, therefore, that we consider these two components of revenue growth separately in order to generate appropriate strategic options and develop our thinking. Increasing Sales Volumes: A Strategic Perspective Considered at the top level, there are a limited number of ways in which sales volumes can be increased. These are illustrated in figure 1. Taking the two primary options, one can either develop

FEATURE - HEDLEY

Increase usage ratio Expand market

Convert new users Enter new segments

Increase sales volume

Win competitors’ clients

Expand market share

Figure 1

strategies to expand the market for the organisation’s services or one can expand current market share in existing markets. In practical terms, of course, a strategist will consider the most effective way of prioritising resources and may well develop an approach which seeks to address both routes for growth, albeit with differing levels of priority and emphasis.

sector or legal practice expertise – the pool in which the firm is fishing increases. Increased opportunity, properly supported in terms of the marketing and sales support activities, should lead to more growth. The key from a strategic perspective is to select new segments which allow the firm to leverage existing expertise, resources or relationships.

Expand the Market Strategies for expanding the market present a number of possible opportunities for development:

Expand Market Share Expanding market share by winning work from competitors presents a range of options, both strategic and tactical.

Increase Usage Rate If usage rate per client can be increased then revenue should grow. Even factoring in the potential for fee discounts to reflect additional volumes of business, strategies to encourage repeat and additional purchases present a route to growth with a high probability of success. This is discussed in more detail later.

Win Competitors’ Clients – The Direct Approach For commercial law firms, the historic security of tenure enjoyed with their corporate clients is fast becoming a thing of the past. One of the largest growth areas in the profession has been the inhouse counsel community – lawyers working within corporates, providing both specific legal advice and managing external law firm relationships (and fee budgets). A feature of the modern corporate client relationship has been the formation of law firm panels, a move towards “horses for courses” in the appointment of firms for specific branches of work, increased transparency, more accountability and the regular tendering or re-tendering of work. The fluid nature of the client relationship has created significant opportunities for sales-oriented firms to capture additional share. It has also seen those less able, suffering significant fee erosion as previously secure, annuity accounts which had been reliable sources of recurring income for many years, are lost to more aggressive and nimble competitors.

Convert New Users Many firms have under-exploited client bases and a hinterland of potential clients which have not been strategically addressed for their growth potential. Within large client organisations there will often be, for example, multiple purchasers and decision makers which are not being targeted effectively for their revenue giving potential by firms. Enter New Segments By entering new segments – whether they be defined by geography,

Services

Reputation

Trust Existing

Clients New

Existing

New

Marketing penetration

Service development

Stage one

Stage three

Market development

Diversification

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Figure 2

The formalisation of sales initiatives, increasingly sophisticated tender response units and the creation of, for example, pursuit teams to actively target clients of high potential value are all now commonplace within leading firms. Alongside this increased level of sales activity, the market has also opened up through the lowering of regulatory constraints on competition. Firms are now able to employ the full extended marketing mix in pursuing their strategic objectives. Further growth is being seen by firms wishing to explore new channels to market and the innovative use of e-commerce technologies. The liberalisation of the market is also creating opportunities for nonlaw firm organisations to compete directly for a slice of the UK’s £23 billion legal services market. Win Competitors’ Clients – through M&A activity Another option, of course, is to win competitors’ clients by acquiring, or merging with, the competitor. This can be distilled down to the level of targeted recruitment – there is a very active market for “lateral hires” (partners with a client following moving firms) as well as the acquisition of teams – which has been an increasingly important element of many firms’ growth strategies, especially when entering new markets or developing their service lines. Of course, the ultimate expression of these types of strategic approaches is the merger or acquisition of a competitor. Whilst the latter would not be regarded as organic growth, it would be fair to regard an active lateral hiring programme as a valid organic growth strategy. Marketing Strategy Options In More Detail The elegant simplicity of Ansoff’s Product – Market Matrix is often under-appreciated. By distilling marketing strategy down into four generic options, a framework is created which allows decision

making to be undertaken with precision and clarity. An adapted version of the matrix (using a Services – Client notation) is shown in figure 2 which has been supplemented to reflect the market challenges faced by those selling intangible services with a high knowledge content (in this context, legal services). Proposed by Igor Ansoff in Corporate Strategy (1965), it suggests that any business has four fundamental marketing strategies that it can pursue based around existing and new clients or markets together with existing and new services. The four fundamental marketing strategies may be summarised as: • Market penetration – sell more existing services to existing clients • Market development – sell existing services to new clients • Service development – sell new services to existing clients • Diversification – sell new services to new clients This sequence also represents the approach that should be adopted to give the best likelihood of success. Stage One is Market Penetration. Assuming that there is good satisfaction with existing services among existing clients, it is far easier to expand sales here than to try to break new ground elsewhere. Interestingly, the Ansoff matrix also predicts that it will be easier to sell existing services (for which one has reputation, track record and market position) to non-clients than to sell new services to existing ones (in which trust may be high but could be outdone by the perceived risk of making a decision to purchase an unproven service). In other words, market development should be prioritised above service development as stages two and three. The challenge of selling a new service to a new client (i.e. diversification) in sufficiently significant volumes to make a difference to the top line in any substantive way, is recognised as being a slow-burn strategy. Within marketing planning, which

FEATURE - HEDLEY

typically has a 12-month horizon, such diversification activities are not even considered – they are on the longer term business planning agenda. This is a stage four activity. Additional Factors for the Professional Service Organisation The generic application of the matrix works well but there are also additional factors at play in professional services organisations which should influence both strategy and marketing activity. These are the role of reputation, the building of high-trust relationships and the development of cross-selling capabilities. The Power of Reputation and Trust in Providing Opportunities for Revenue Growth The psychological power of reputation and track record is a huge purchasing influence in all sectors; within professional services it is pre-eminent. Research consistently demonstrates that the lowering of perceived risk (as evidenced by reputation and track record) and the building of trust are the two most important determinants of success in selling professional services. This should not be surprising when considered through the eyes of the purchaser – when buying a professional service (for example legal advice) there are factors at play in the mind of the prospective client:

• The service is complex and I am unlikely to understand it fully. This means I will need to trust the professional as I will not be able to judge the quality of the core technical service that I am receiving, perhaps not ever and certainly not until it has been delivered, by which point it is too late to unwind my decision. • The service is likely to be expensive and I risk being seen as not being a sensible custodian of the company budget if I make a poor quality decision. • If this all goes wrong there are potentially serious consequences for my business and for me personally.

Given this psychological frame, the desire to make low risk decisions, supported by higher levels of trust between professional and client, are clear. This fact is clearly evidenced in much professional services’ marketing and communications with credentials featuring heavily, independent rankings, client testimonials and experience rich case studies all being used effectively to reduce the perceived purchase risk. It is also interesting to observe how proxies are used effectively as part of professional firm marketing strategy – these are features

A focus on growing existing clients was considered the least glamorous of the available options in the testosterone-rich but common-sense poor world inhabited by many professionals. which are not part of the core technical offer but which sit alongside it and give the client an impression of core-service quality. A simple example might be the professional way in which frontof-house operations are conducted as part of the marketing mix. As a matter of absolute fact, this has no direct bearing on the quality of the professional advice delivered but as a matter of perception this quality of approach moulds the client’s belief system about the intangible quality of the professional service. It follows, therefore, that the next most effective strategy for growing sales is to leverage reputation in selling services to new clients before testing the trust of an existing client with a proposition to introduce a new service for which the firm has no reputation. Cross-selling:The Holy Grail of Professional Services Marketing Cross-selling, the introduction of services which are offered by the firm already to a client who does not currently buy them, is the Holy Grail for many law firms. With a client who typically has a need for more than one service, it is all too common for firms to fail to capitalise on the opportunity to cross-sell. A question that is often asked is: “In this model, where does cross-selling sit?” In truth, cross-selling in the professional services context occupies a hybrid position for many law firm partners. Selling a new service to an existing client where the firm has an established service reputation elsewhere should be sensibly positioned as being more challenging when compared to selling existing services to the same client, but easier than creating a new client relationship. In many firms the challenges associated with cross-selling of services emanate not from the client’s propensity to purchase but from the politics, attitudes and motivations prevalent within the firm. Much of this is bound up in the historic culture of the profession, reward systems which tend to focus on personal rather than team

rget

e ta venu

New business sales gap

MP Revenue

Current book of business

Figure 3

Time

performance, and a high level of “my client” protectionism which exists in many firms. A structured approach to client management is the way to ‘shine a light’ on these destructive behaviours and to use the twin levers of transparency and peer pressure to bring about change. Those most enlightened now have active programmes to break down these barriers but, for the majority, significant revenue growth opportunities are missed not through a lack of intellectual recognition but rather an inability to change deep-rooted behaviours and cultural norms. The Implications for Marketing Strategy Over Time Figure 3 sets the Ansoff Matrix against a time line. The important constructs of this diagram are the revenue target and the rate of decline of the current book of business. The difference between the two at any point is the ‘New Business Sales Gap’. The size of the gap is determined by the degree of stretch in the growth target and the rate at which current business erodes over time. For firms that are deal-driven and highly transactional in nature, the current book of business will erode quickly. Those with more annuity business will be able to predict cash flow into the future with more certainty. Firms with a project or major disputes focus have a different challenge – cash flow will be predictable but project pipeline management techniques will be needed to ensure that resources are well utilised and that the ‘cliff-face’ effect

of one significant matter ending is compensated for by another ramping up. However, across all firms and all markets, classical strategy theory is unequivocal in its recommendations– initially max-out through market penetration, then move on to market development and finally consider service development in order to maximise short-term revenue growth opportunities. Creating a Client Development Culture to Drive Revenue Growth It is fair to say that a focus on growing existing clients was, until relatively recently, considered the least glamorous of the available options in the testosterone-rich but common-sense poor world inhabited by many professionals. Awards, accolades, reputations and rewards could only be achieved by ‘knocking down the doors’ and adding new names to the client roster. Whether the new-found clients developed into longer term sustainable sources of revenue was rarely measured. In the mind of the partner obsessed with a desire to win new clients (and a commensurately short attention span), how these relationships were subsequently developed was something best left to others far away from the battles at the front-line. Now a much more balanced approach is, quite rightly, prevalent across professional service firms, with client development recognised as key to enduring success. However, the ‘ownership’ of relationships is still an issue, with the stranglehold exerted by some partners being an effective choke on revenue development.

FEATURE - HEDLEY

Those who negotiate the fee need to be much more conversant with negotiation techniques and have a clearer understanding of their firm’s key price points.

as to how much time will be recoverable at the point of raising an invoice and under-billing at that point. Given that such leakage can only come off the profit line, it is surprising how few law firm partners are focused seriously and determinedly on these areas. A further pricing trend is the move towards fixed fees for particular types of work. The profit equation then moves to the issue of internal efficiency. Revenue growth, in these circumstances, is determined by deciding on the correct price point to meet demand and increase unit sales. In a market where most legal services are poorly differentiated and brands are weak, this is very challenging. The position is exacerbated by the high levels of price transparency afforded by new technologies, the internet, social media and clients’ sharing pricing data through trade forums and the media. In common with all businesses, when perceived differentiation between competing offers is low, decisions tend to be price driven. For most firms, the price elasticity of demand is very high and even small changes may result in dramatic effects on volumes. There are significant opportunities for the marketer to support pricing through effective brand positioning strategies, genuine added value differentiation (on dimensions which are important to the client) and through the creation of a high trust relationship between client and firm that will support more robust pricing.

Get Better at Pricing AND Negotiation: The Leaky Colander Pricing is the second element of the revenue growth equation. Significant downwards pressure on price since the onset of the recession has meant that increases in volume have been all but wiped out. Many firms are simply running (much) faster to stand still. It follows that revenue growth can be enhanced in practical terms by focusing hard on pricing and improving negotiation skills. If current conditions mean that price rises cannot be achieved, the objective should at least be to minimise erosion. Pricing for law firms is increasingly market based. Understanding the market in which they are operating is key if pricing decisions are to be optimal – profit or loss is made at the margin with too few partners appreciating that a fee discount of 5% will erode profit significantly (in pre-recession days by around 20% but today by up to 33%). What this means in practical terms, in many firms, is that those who negotiate the fee (generally the partner with the client relationship) need to be much more conversant with negotiation techniques and have a clearer understanding of their firm’s key price points. They also need a good working picture of the competitive market for the work that is being negotiated. It is also not uncommon for firms to triple or quadruple discount their fees – once in the initial negotiation, again by not tracking variances for which an additional fee would be payable, next by inaccurately recording their inputs (i.e. time) for work which is chargeable on that basis and finally by making value judgements

Back to Basics: Do the Simple Things Well Organic revenue growth is difficult in the current economic climate. Firms give themselves the best chance of success by understanding the fundamentals, focusing on getting the basics right and having clear, executable plans. Importantly, there needs to be an understanding that organic growth happens incrementally and across a number of fronts. Consequently an unrelenting focus on implementation is key. The marketing function has a key role to play here, both in setting the strategic agenda and in supporting its effective implementation. REFERENCES Ansoff, I. Corporate Strategy. New York: McGraw-Hill, 1965.

Andrew Hedley advises law firm leaders on issues of vision, strategy and change. Alongside project engagements, he is a sought after strategy group guide, partner retreat speaker, workshop facilitator and coach. He is the author of Developing Strategic Client Relationships (2008) and Client Strategy in a Changing Legal Market (2011).

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New research has revealed that a disconnect between business leaders and their marketers is threatening growth. Bev Burgess explains why and calls for marketers to become more commercial to close the gap.

FEATURE - BURGESS

Are You A Commercial CMO?

f ever there was a time for business to be market-led, this is it. Our businessto-business service sector, responsible for around 11% of the economy, is struggling, with no growth reported in the first two quarters of 20121. Yet our latest research at The Capsicum Group BEV BURGESS shows that marketing is not playing the full role in driving growth that it does in other industries. A large part of the problem is a marked disconnect between the people running these businesses and their marketing teams. At the heart of the disconnect lies the fact that marketers lack the business acumen and connection with customers that they need to drive growth. They measure their contribution in terms of brand awareness and opportunities to view, rather than the metrics of the business: orders, revenue, profits. As a result, marketing teams within service companies like IT, telecoms, professional services and facilities management have shrunk over the past five years, and have been ‘demoted’ to focus on tactical operations.

“Marketing was strategic, straight into the CEO. Now strategy is done by the strategy department, market insight by sales, internal communications by HR and CRM by the project teams. We’re left with marcoms.” This issue has been discussed recently by the Nestle Professor and IMD President, Dominique Turpin, who has called for a new role, the Chief Client Officer, to replace the misunderstood and increasingly peripheral CMO2. Our view is slightly different. In B2B services, we believe that what is needed is the ‘commercial CMO’ (Chief Marketing Officer); one who is business-led, client-connected and accountable for delivering against the same business metrics as their colleagues around the board table.

Office of National Statistics, Quarterly National Accounts, Q2, 2012

‘The CMO is Dead’. IMD International, September 2012

Marketing plays a leadership role

13 5

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Marketing leads or supports the strategy process

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Figure1: The role marketing plays in driving growth today

What’s the problem? We conducted 40 in-depth interviews with people who run service companies and those responsible for marketing. Each person gave us at least a thirty-minute interview, exploring their company’s objectives and the role marketing plays in meeting them. Most of the business leaders spoke about their need to deliver growth despite difficult economic conditions, but expressed a lack of clarity about how marketing could help them. Indeed, there was a marked difference of opinion between business leaders and marketers as to how marketing contributes to growth today, as shown in figure 1. This lack of clarity about the role marketing could play is not surprising, given that when asked to define marketing, no two business leaders gave the same answer. Their lack of familiarity with what marketing can deliver is, at least in part, down to the fact that few business leaders have spent any time in the marketing function during their careers.

“We used to rotate executives through sales and marketing, but now it’s just through sales.” In most organisations, marketers, even at board level, are usually focused on communications to create leads or pipeline opportunities. The marketing function plays a supporting role at best in the development of business strategy or compelling service

propositions. Yet these activities, when market-led, drive revenue and increase or protect margins for the business, creating long-term value for shareholders.

“It’s hard to differentiate and improve profitability. The focus is on how finance and operations can solve this, and only a quarter of the marketers I asked thought they could influence it by targeting customers, changing offer mixes and shortening the sales cycle.” Even in their core activity, supporting pipeline or leads, marketers often do not work closely enough with sales or get involved in major accounts or bids as part of the account team. One reason is the ‘back office’ nature of the function’s approach today. Few marketers have any meaningful engagement with clients, giving them no basis upon which to contribute to sales discussions.

“Marketers don’t have the business acumen to position us effectively in a bid.”

FEATURE - BURGESS

In addition, most marketing functions today are caretakers for their company’s brand, but usually only in terms of the logo and visual elements. They do not control how the brand is delivered or experienced day-to-day by clients and employees, or how it links with the wider reputation of the firm, which in itself has the power to increase repurchase and recommendation, thereby lowering cost of sale.

Of these seven steps, the first two are critical. We labelled them ‘the foundations’, since it is hard to take the subsequent five steps if these first two have not been addressed. Yet that is what we found most marketing teams trying to do. The first step is about understanding business. The second is about connecting with clients.

“In today’s digital world, reputations can

Foundation 1: Marketers that are business people There is a consensus among business leaders that the best marketers have run businesses or worked in sales. In fact, they are business people first and foremost. They understand how the business makes its money, how its services are developed, sold, and delivered, and what life is like for their colleagues in different parts of the business.

be won or lost in less than 24 hours.” So what does all this mean? Why is it a problem? Simply put, companies need marketing now more than ever as they seek to grow in a difficult economy. Marketing could be doing so much more to drive growth and add value, without increasing investment beyond the average 1.9% of revenues our research showed is spent today. By refocusing and realigning the function, it can become the lynchpin it is in other industries – creating services that clients want to buy, brands that they will pay a premium for, and experiences that they will come back to and recommend – to build successful businesses and drive long term value for shareholders. Build a stronger engine for growth To build marketing into a stronger engine for growth, we recommend seven pragmatic, cost neutral steps to get the foundations right, get the focus of your marketing investment right, and add value through the right functional activities, as shown in figure 2.

“All marketers should have run a business if they want to be seen as a peer.” Business leaders value commercial acumen more than advanced marketing qualifications or broad marketing experience. It gives marketers a different perspective and the knowledge and confidence to challenge the business as it makes decisions about where and how to grow. When asked what they would look for in a future marketing director, all of the business leaders we spoke to were clear that they would be looking for experience outside of marketing next time.

Functions

Focus 3 Business KPIs to measure marketing

Foundations 1 Marketers that are business people

4 Marketers rescoped to add strategic value

5 New product development techniques for services 6 Business development value chain 7 Reputation, not logos

2 Marketers reconnected with clients

Figure 2: Seven Steps To Transforming Marketing For Business Results

“I want someone with business experience, the ability to think strategically, and a can-do attitude.” One managing partner of a professional services firm had already taken the step of bringing in someone who had been CEO of a smaller firm to run the marketing function. Some leaders in other sectors are tackling this issue by giving their marketing directors parts of the business to run in addition to their day job. Both business leaders and marketing directors overwhelmingly agree that marketing needs to be much better at demonstrating return on marketing investment in language that the business understands. Although there are usually clear objectives set for marketing, the lack of alignment between business and marketing metrics makes it difficult to measure marketing’s contribution, leaving business leaders to question ‘why should I invest this money in marketing rather than putting it straight onto my bottom line?’ Marketers with more commercial acumen naturally align their activities to the business’ key performance indicators (KPIs) and report against those KPIs, removing the basis for this question. One of the most important business functions for marketers to understand is sales, and the marketing directors having the most success today are those who have built a strong network with the sales team. In several companies we interviewed, there is a ‘handshake’ between marketing and sales on the role each will play in the business development process, and marketers understand what is needed by their sales colleagues at each stage of the sales process to move a prospect on through their corresponding buying process. One of the business leaders we spoke with described what he was expecting from this closer collaboration with sales and on into account management.

“To me, marketing is an intrinsic part of

brand guidelines, designing the brand experience is critical, and this can only be done by working with the delivery organisation. Foundation 2: Marketers reconnected with clients Our interviews revealed that marketers’ current lack of engagement with clients means they have little market insight at a time when clients expect service providers to demonstrate both an understanding of their business and the value they can deliver.

“People that sit there making beautiful brochures or events don’t have a place any more. It’s people that have an executive network and can have executive dialogue that we want.” Most of the companies we spoke to have marketers who never see a client, while another significant proportion have marketers who only see clients at marketing events and exhibitions, or to create case studies and plan their joint promotion. Only one quarter of companies had marketers who meet clients on core business. This has led to too many of the companies we spoke with having an ‘inside-out’ view of their world, which manifests itself in continuing to invest resources in what has always worked in the past when the market has moved on; in writing dreary service descriptions rather than compelling value propositions; and in running ‘product push’ communications campaigns rather than building interest among targets to create ‘demand pull’.

“Marketers should be helping us look at which markets are growing, who is serving them, and how we compete.”

the business development value chain – it should be helping us to win new name business and grow our footprint in existing clients.” And finally, the first foundation step of understanding and connecting with the business needs to extend into those responsible for delivering service to clients every day. For many of the marketing directors we interviewed, their teams rarely had any contact with delivery teams. This is surprising given the nature of these businesses, where the delivery people are often the company’s ‘product’ and so a clear part of the marketing mix. Some marketers approach this issue via the HR department or through internal communications, rarely going direct. But if marketing directors are to bring their brands to life in these industries, rather than simply police visual

Become a commercial CMO So, how can you build your business experience and increase the time you spend with clients to further your own career as a commercial CMO? I once had an inspirational boss who told me that the best way to get on in marketing is to get out of marketing. He was right. If you do not have experience of running a business today, start asking for at least a six-month secondment into a business role to get an understanding of how a P&L (profit & loss) works and the pressures of running one. Think also about spending time in sales.

“We need a mature sales leader who feels the pain of loss to encourage the mindset, ‘have we done enough to win this deal?”

FEATURE - BURGESS

Buddy up with the finance director to broaden your conversation with them beyond the latest marketing forecast to understanding the financial levers of the business and how marketing can impact them. Enlist your new buddy’s help in using the business’ KPIs to measure return on marketing investment. Then work with the whole management team to build a marketing dashboard that shows your contribution to these KPIs. Spend time creating a business development value chain with clear roles for marketing, sales, account management and delivery teams. One of the ways you can help to develop business in line with the CEO’s expectations is by creating programmes for key accounts and major opportunities or bids. So, agree with your colleagues which accounts and bids represent your company’s best opportunities and start supporting them with marketing activities today – it is a great way to build up your commercial acumen while getting closer to clients. Another way to reconnect with clients, beyond traditional marketing events, is by setting up client advisory boards, running customer satisfaction surveys and conducting win/loss reviews. These all help you to bring the voice of the customer into the business, shaping strategic decisions from the outside-in.

“The voice of the customer research and advisory boards is powerful – they take us from opinion to customer insight-based decisions.” To really find out what your client’s lives are like, ask to spend a day with a few of them. Many of your targets will belong to a network that can facilitate this kind of request if your own business is unable or unwilling to involve clients. My own experience has shown that executives are prepared to help you to understand their problems if it means your company may get the insight to solve

them. A contribution to a charity of their choice is a great way to say thanks. Once you are comfortable spending time with clients in marketing situations, it is time to move into core business meetings. We found that some leading marketing directors are running futuristic showcase centres and facilitating strategy labs with clients to drive the all-important innovation that clients look for from their partners and suppliers. These activities open up opportunities for cross-selling and improve ongoing executive engagement with existing clients, something many account managers struggle to achieve on their own. Outside the office, think about how you can build and maintain your own executive network, attending business events such as industry clubs or chamber of commerce meetings in addition to building a strong virtual network via LinkedIn. Your sales and account management colleagues should have objectives around building strong relationships with clients, prospects and influencers, and there is no reason why you should not have these objectives too. And finally, once you start making progress in these areas, remember to publicise your achievements and add them to your LinkedIn profile, because 80% of the people we spoke to said they would use LinkedIn or referrals to find candidates for their next marketing director before turning to traditional search consultants. There are not enough commercial CMOs out there, so start your own journey to become one today, so that you are ready when one of these companies starts to look for their new CMO tomorrow. For the full report on our recommendations visit www.thecapsicumgroup.com/insights.php. To contribute to the debate on how to develop more commercial CMOs, join our new LinkedIn group, ‘The Commercial CMO.’ Bev Burgess is a director of The Capsicum Group, which helps service companies to accelerate their organic growth. bev@thecapsicumgroup.com

Bev specialises in helping service companies grow faster and more profitably than their competitors. She has spent twenty years running and marketing B2B service companies. Bev’s background, spanning international blue chips through small businesses, includes senior roles at British Gas, Epson and Fujitsu. She built the European operations of the US-based IT Service Marketing Association, consulting and training members such as Accenture, BT, HewlettPackard, IBM and Xerox. Regarded as an authority in the marketing and selling of services, Bev is a judge for the annual ITSMA Marketing Excellence Awards and published ‘Marketing Technology as a Service’ in 2010

HANDBOOK – LOOK IN This issue features a number of book reviews to help you with your upcoming reading choices. In this article, we are very fortunate to be able to feature an extract on Business to Business Distribution from an upcoming Marketing Handbook by Karl Meyer. This new handbook analyses and assesses different distribution models and identifies the key issues in determining the right distribution strategy for an organisation. It considers a concise guide to identifying the key distribution activities within a wide variety of national, international, physical and on-line businesses and how to relate the experiences of other businesses within a company. This Handbook will be part of a collection of ten handbooks, covering the ten Ps.

Distribution – Models of Business Processes and Practice, A Marketing Perspective Introduction ention the word “distribution” and the majority of people will immediately think of large warehouses full of pallets and fork-lift trucks and Eddie Stobart lorries, rushing up and down the motorway network taking goods to shops KARL MEYER across the country, and wonder what exactly it has to do with marketing (except selling lots of toy lorries and giving them all cutesy names). Marketing and physical distribution just don’t seem to mix. It is true that distribution can involve lots of this type of lifting, shifting and shipping but that is far from the whole story and, within any business of any size, distribution consists of many business and marketing decisions. More comprehensively, it involves the understanding of how to place your business’ products and services into the market, who will be involved in this placement and how this network of people and processes is interlinked and managed. Many of these marketing management decisions and processes are considered to be unglamorous. Distribution does not require snappy slogans or eye-catching packaging design. It does not create logos or TV ads. It involves a lot of long-term planning and co-ordination and this is often a neglected segment of the overall marketing mix. However, it forms an essential element of determining the strategic direction of an organisation – it can shape the entire format of the business and can truly be the driver of a business’ ultimate success. It is for this reason that understanding the marketing role in planning business distribution is crucial for any organisation.

Business to Business Distribution Within the Business to Business (B2B) sector there are a number of key factors that differ from Business to Consumer (B2C) marketing and distribution. They are: • Volume • Value • Margin • Customer numbers • Complexity How these factors affect your business model will help to determine the distribution strategies best suited to your organisation.

FEATURE - MEYER

Volume Many B2B transactions are relatively high volume. This is particularly true of commodity products and component products. For most items, high volume B2B transactions, there is little core value that can be added by intermediaries. Where value is added in these sectors, it tends to be in the areas of trading, particularly in supply and futures trading. The buyers of many commodities require continuity of supply and assurance of price over the medium to long term and so will prefer to use trading markets to support their needs. These traders seek to add value to the transaction for both the supplier and the end customer by offering both parties continuity of sale and supply, respectively and certainty of price and cost. They use a variety of techniques for this including: • Forward contracts These are agreements between two parties to exchange, at some fixed future date, a given quantity of a commodity for a price defined today. The fixed price today is known as the forward price. • Futures contracts Essentially, a futures contract is a standardised forward contract in which the buyer and the seller accept the terms in regards to product, grade, quantity and location and are only free to negotiate the price. This type of contract has been in place since the 17th century, though its use took hold in the USA in the 19th century. As a further derivative on these trading activities, it is possible to factor the anticipated payment of a futures contract thus converting an agreement to be paid in the future for an immediate payment (albeit at a reduced rate). This allows a commodity supplier to realise cash from business activities that may not have even commenced at the time of the contract. The risk involved in these secondary derivatives can be high and may need to be offset with a complex series of hedging agreements to cover the risk of non-delivery. This complex range of activities is normally considered noncore to the business operations. However, they can dramatically alter the structure of the cost/value profile of the organisation. By using these intermediaries within the distribution chain between production and consumption, the profit structure of the business is affected. Many organisations can actually generate more profit from their futures trading and hedging activities, than they make from the actual core business activities.1 All of these financial-based activities rely on there being substantial volume requirements within the market for a product that is largely identical regardless of supplier, a significant number of suppliers and a significant number of buyers. Without these three elements, the scope for trading, offsetting and pre-selling of products is extremely limited. Value Where volume and commoditisation of the product does not apply then the value element of the product offering comes into play.

Value in this sense relates significantly to uniqueness. Products with a low initial value need enhancement through the distribution chain whereas products with high value/uniqueness may not require this. Once again there are exceptions to this general principle: • Locality – many B2B high value transactions require on-going support, maintenance, and aftercare and even within a national context, these services may be best supported by a localised organisation. Large capital equipment would be an example. Therefore, the distribution chain is being used mainly for aftersales support of local customers. • Customisation – B2B high value transactions can often be typified by a degree of customisation that does not occur within the B2C sector. Many organisations may choose to defer this to other organisations so that they can focus on their core activities. • Integration – Of particular interest within the IT/high technology sector, the integration of a range of different products and services from multiple suppliers is often required and can best be supported by a highly focused distribution channel. Margin Frequently linked to value and volume is the margin available on a product. The operation of a dedicated sales and marketing function is an expensive activity for any organisation and if the organisation has relatively few customers then this pro-rata cost can be high. It can therefore be worthwhile for an organisation to split this margin with the distribution channel and so access their sales functions. Take the case of a B2B manufacturer of highly specialised, high value, high margin but low volume items. To maintain a national sales team which may only support 3-4 sales per quarter would be an expensive undertaking. However, by using the sales channel of a distributor, the direct sales costs can be reduced and the distributor itself would be able to incorporate this product into his or her portfolio. The distributor accepts a marginal additional cost whilst gaining the potential for extra sales and income. The manufacturer gains access to an established customer base without the costs of creating it. Of course it is necessary to ensure that the distributor is committed to the product and is actively selling it: channel management is key. Customer numbers In general terms, the number of customers a B2B business will manage is lower than the number a B2C business will handle and in general the length of the relationship will be longer. Also the transaction time will tend to be longer (time between first contact and first sale). Because of these factors, there will typically be more of a relationship between the supplier and the customer. These factors reduce the “distance” between them. 1

http://www.rigzone.com/news/article.asp?a_id=117318

Supplier/Customer “Distance” Supplier

Customer

Increasing role of distribution Figure 1

Many B2B companies will take advantage of the opportunity for focus that the small number of customers offers and seek to reduce the role of the distribution chain as far as possible. See Figure 1. Complexity As we move away from commodity suppliers the complexity of the goods or services increases. This can have two different effects on the position of the value chain and the distribution mode. If the products are extremely complex and require a consultative sale, commissioning and support process then the supplier organisation may choose to internalise all of this work. This approach is particularly effective for the buyer to only have one contract with a supplier rather than multiple contracts. If the suppliers’ services are part of a wider system then the purchaser may prefer to devolve the contract to a third party that can act as a project/contract manager. This manager can then take the responsibility for negotiating with all the suppliers. In many cases these project managers will not expect to be paid from the suppliers’ margins (in some cases this will be expressly prohibited) but will charge a premium to the customer. The customer will put a value on avoiding complexity and will judge the value offered by a neutral third party in managing complexity compared with the estimated costs of managing the complexity internally. An example of this third party management process is the Cambridge Guided Busway (a major infrastructure project). In this project, Cambridgeshire County Council opted to use a professional project management company (Atkins) to manage the prime contractor (BAM Nuttall). The costs of engaging a third party on this project were considered good value compared to the risks and internal cost of managing such a project. This is of particular relevance as, in this case, the customer has little experience of infrastructure projects of this type and the risks implied by managing the contract internally were considered to be high. In the end, the project was nearly 2 years overdue and

numerous legal cases are in progress relating to cost and time overruns and the role of the project manager, so it is not clear if the use of a third party was necessarily the right choice2. In summary, the level of complexity of a solution can have a significant effect on the style of interface and the idealised distribution channel. Distribution modes in B2B structures Having assessed the factors that influence distribution strategies in the business to business sector it is now possible to analyse the different distribution modes that this sector can employ. They break down into the following key areas: • Direct • Via subsidiary • Direct fulfilment using agents • Via distributor • Via multi-tier distribution Direct Clearly, the simplest distribution mechanism and the solution that, due to not needing to pay any commission or fees, offers the highest gross margin. • Here, all the sales and marketing functions are internalised within the selling business. • All communication to the buyer is direct. • All marketing is undertaken by the selling organisation – albeit many organisations physically outsource at least some marketing activities. • What this means is that all marketing is selected, commissioned and paid for by the selling organisation. • All order fulfilment is undertaken by the seller (except the actual physical distribution of items by lorry, etc. which is usually outsourced). This format of course requires the selling organisation to be adept at all these functions. It needs a highly motivated sales and marketing department; it needs to fully understand the market place; it needs to understand the buyer requirements and it needs the ability to offer the full suite of fulfilment activities (order processing, manufacture, commissioning (if needed), and after sales support). This range of activities is extensive and for an organisation to be able to undertake all these functions is unusual. The simplest analogy for this multi-function skill would be a cycling team (an image familiar to anyone who has watched the Olympics or the Tour de France). A cycling team needs to have a group of dedicated individuals all striving for the common purpose. Each member of the team takes their turn at the front of the pack, pulling the other team members along, then the next member takes over and contributes, followed by another and another all through 2 http://www.nce.co.uk/news/transport/atkins-drawn-into-dispute-overcambridgeshire-guided-busyway/8629750.article

FEATURE - MEYER

Production

Sales Division

Customer

}

Parent

Customer

Figure 2

the team. Only if each member contributes fully can the team win. Even if the team had a hugely skilled individual, if any member of the team turned up hung over or riding a penny farthing then the team, as a whole, would fail. With an organisation attempting every element of the fulfilment chain internally there is both the risk of any one of the elements working sub-optimally and also the additional management costs of integrating all the functions. It is necessary to critically assess the entire organisation to ensure that it is performing optimally. The skill sets required to develop and produce products and services are often different from those required to build an effective sales channel and so some organisations opt to develop a completely separate sales subsidiary to ensure management focus. See Figure 2. Use of a wholly owned sales subsidiary This model is commonly used within international organisations but it occasionally occurs within a national structure as well. In many cases the production element and sales element are both owned by a separate holding company. In addition to the management focus this structure can offer, it also has a number of other benefits. For example a manufacturing company may produce two lines which are focused on different customer bases or may have developed or acquired a line that has a different profile of customer. It may be decided that the new line would be better served by a more focused sales organisation (perhaps under a different brand) and so the sales of this range may be hived off to a separate organisation whilst maintaining the principle product (and/or brand) with the parent company. Alternatively the organisation may be considering a multi-mode sales model where it offers other companies access to its products whilst still selling the products itself. In order to ensure parity and a

“Chinese Wall” between these two channels the organisation may decide to (or in some cases be forced to) set up a separate sales company. The largest and most visible example of this structure would be BT with its BT Openreach (building and supporting the infrastructure), BT Business, and BT Wholesale divisions. In this case, the regulator insisted on this separation but many companies would set this structure up for themselves. See Figure 3. Another environment where this approach occurs is within the petrol supply industry. Organisations may own the oil exploration and distribution elements of the business within one company (refining tends to be outsourced in a complex set of business structures beyond the scope of this book) and may, through a separate company, own a chain of branded petrol stations. It may also sell its fuels through a set of franchise petrol stations which, although they carry the same branding, will be independent businesses operating through a completely separate channel within the parent company. One example of this structure is BP. Its own petrol stations can be identified by the use of the “Wild Bean Cafe” brand for its own coffee/refreshments, whereas the franchise operations may offer different coffee brands (Costa or Coffee Nation are common). The brand of coffee on sale is often the only way to distinguish which are owned and which are franchised. This dual supply structure will sometimes allow BP to “own” a near monopoly on petrol supply in an area whilst avoiding any competition rulings. This structure shows one other possible reason for the use of a wholly owned subsidiary - the taxation and funding advantages that may accrue from such a structure. Manufacturing can be capital intensive and may require complex loan and hedging financial structures, whereas a business to business sales and marketing structure can be relatively low cost and more straightforward to finance. By splitting a business into two legally separate entities, the organisation can take advantage of different funding routes – borrowing cheaply using the lower risk entity and cross-subsidising the higher risk entity by either inter-division financing or other structures, such as paying higher than market rate for goods, buying “consultancy services” from the other entity, management fees, licence fees, etc, etc. Again the complexities of intra-company financing are beyond the scope of this book but these structures can offer significant funding advantages. Other advantages come from tax allowances against research and development fees. By separating the income element (the sales activities) from the cost element (R&D and/or manufacturing) and providing multiple reimbursement methods between the two organisations (such as consultancy, licensing, management fees, etc.), it is possible to gain advantages on corporation tax, VAT and other taxes. Fulfilment by agents Agents (usually self-employed sales people) are a diminishing element of the distribution chain in many developed countries.

Production

3rd party seller

Sales division

}

Parent

Customer

Figure 3

Their usefulness has been surpassed by manufacturers bypassing them and selling direct to the end business (often through telesales or on-line processes). This offers the business a reduced cost of entry into sales markets compared to the costs of recruiting, training and paying commissions to agents. The sales agents do not normally work within the contract chain (all contracts, payments and deliveries are conducted between the supplier and the customer) though some agents may very occasionally accept payments, subtract their commission and pay the remainder on to the supplier. This is very much the exception (certainly within the national structures). One area where agency is still active is in parts of the independent retail sector and in particular, toys. This sector still has a significant number of very small retailers – many of whom will stock many hundreds, if not thousands, of lines from many manufacturers. Some parts of the business still rely on a personal touch (soft toys in particular are rarely bought without seeing samples) so neither telesales or on-line fulfilment is practical. Yet the diffuse nature of the retailers and their individual small order size (minimum order values of less than £250 are common) makes in-house physical sales agents unprofitable. In this case the use of agents – most of whom will be multi-supplier agents – offers the manufacturers significant advantages. These agents can visit the retailers, demonstrate new lines and will often undertake merchandising and stock replenishment orders for the retailer. Even though the agent may only earn £20-£30 per manufacturer, per visit in commission they may service 3-5 lines with each retailer making the visit cost effective for them. The retailers value this personal touch as often the agent will recommend different lines to the retailer based on their experience at other sites and may suggest complementary products from other manufacturers.

Distributors Beyond the basic function of the agents come distributors. Distributors can in some cases still be individuals though, by taking on the ordering, fulfilment, invoicing and payment collection, they are expanding their role in the chain. Most distributors will be small to medium sized companies – again offering multiple lines to “the trade”. Again there are exceptions: Computacenter.com is a £2.5 billion turnover organisation and, within the IT sector, distributors of this size are not infrequent. The distinction between distributors and wholesalers often made is that wholesalers will place orders “on spec” and then aim to sell on those products to other organisations Booker food distribution would be an example, whereas distributors normally do not hold stock but act more like an outsourced sales entity – passing on customer orders on a 1-to-1 ratio. Again this split applies in the majority of cases though, in some areas, distributors may hold significant stocks of common basic items to ensure rapid turnaround of orders. Once again wholesalers and distributors aim to offer a wider range of products and services to their customers than a single manufacturer can support. This allows the buyer to reduce their transaction costs3 substantially compared to buying from the individual suppliers. In many cases the cost of selecting, contracting and negotiating and processing the orders can be so substantial that buyers will pay a premium for products purchased through a trusted distributor. Multi-tiered distribution Multi-tiered distribution is relatively rare within the national environment as it tends to require a degree of complexity that isn’t typical. One area where this multi-tier model operates is within car spare parts. Unipart4 acts as a distributor for many different OEM (original equipment manufacture) parts as well as unbranded or generic items for the motor trade. It will purchase the components typically either from the manufacturer direct or, in the case of many non-current vehicles, from a subsidiary and then sell these to its own franchise operations and motor repair chains. The franchises will then act as distributors to the smaller independent garages who then use the items. This is an example of both a multi-tier distribution chain and an internalised distribution arm within the same organisation. The complexity of this chain is only matched by the amazing flexibility, with spare parts ordered in the morning by the garage being delivered in many cases within 4-5 hours by the local franchise with overnight replenishment undertaken by the higher tiers of the chain. 3 Transaction Cost Theory and International Business, Journal of Retailing, volume 86. Issue 3, September 2010. Jean-François Hennart

Unipart.co.uk

FEATURE - MEYER

Manufacture

Manufacturer

Unipart branded parts

Principal distributor

3rd party local distributor

Local distributor franchise

Local dealer

Local garage

} National chain

Figure 4

Summary What can be learnt from this group of distribution schema? The primary conclusion is that there are almost as many different variations on schema as there are companies. Generalisation is hard and largely fruitless. However there is one commonality that the majority of these methods share – value to the customer. Value to the customer With the exception of the complex, financially derived models of some companies, all these models are focused on delivering the maximum value to the customer and this is a common theme throughout marketing. In order to determine the best distribution structure for your organisation it is first necessary to ignore the needs of your company and put yourself into the mind of the buyer. What is the buyer’s idealised distribution model? How do they work? What works for them? In the vast majority of cases any organisation will be operating in a highly competitive environment. Competitors will be fighting to capture market share and/or profitability. If your organisation is not structured in the most suitable way for your customers then the likelihood is that a competitor will be. Customers in general and business customers in particular are looking for the simplest, least hassle approach to supply. By simplifying their supply side requirements, less time and energy is spent on the “cost” side of their business and so proportionally more can be spent on the “income” side. This double saving provides a huge incentive to the buying company to find a supply partner that does what they want them to do.

Of course this idealised supply side model may not be as profitable as the perfect production focused model. It may require extra stock holding, the use of distributors which reduce gross margin, the provision of local presence that may not be optimal and many other factors. A practical distribution model is therefore a hybrid between the supply side and production models. However any compromise away from the supply side model should be carefully considered to ensure that this is not offering your competitors an advantage.

Karl has spent the past 20 years working within the Internet Industry in both Technical and Sales and Marketing Roles and was Director of Channel Marketing Strategy for WorldCom in EMEA. His roles took him across most of Europe and the Middle East, culminating in working for King Hussain of Jordan. Karl is currently an Associate at SPICE.com – an online marketing agency focusing on delivering SEO, PPC, email marketing and social media marketing to deliver business growth to a wide variety of clients in the UK and overseas. His particular expertise is the use of Web Analysis and Social Media to accurately target customers. He also runs an on-line toy business where he puts his knowledge of SEO and online marketing into practice. Karl has an MBA from The Open University with a particular emphasis on International Enterprise Development and Knowledge Management.

BOOK REVIEW

Putting laughter back into learning! Ardi Kolah, author of the Guru in a Bottle® Series on sales and marketing explains why the learning experience for those starting their careers in sales and marketing should be about having fun.

remember first meeting Steve Marchant at The Plough Pub in Bloomsbury, London round the corner from The Cartoon Museum where he’s the ‘cartoonist-in-residence’ working with all age groups and organisations. Steve had a pint of John Smith’s and I ordered an extra cold Guinness. Eighteen months later, we’re still going down the pub to share a beer and a laugh and more recently we’ve been chatting about a new cartoon strip for each of the books in the Guru in a Bottle® Series which

has just been published by our friends at Kogan Page. What brought Steve and me together is our shared sense of humour and a desire to make complicated things clearer, human and accessible; particularly for students and those at the beginning of their sales and marketing careers. Sales and marketing is the lifeblood of any organisation that depends on selling more stuff, selling or marketing an idea or concept, or indeed raising money in order to continue to do good deeds in the community. As a career choice, many young people are attracted to sales and marketing, as it’s a combination of understanding business and organisational objectives often coupled with the ability to find creative and innovative solutions that can deliver tangible outcomes. Often this involves social media and mobile communications.

Not every day looks or feels the same and anyone working in sales and marketing – whether client side or agency side – will tell you that to stay at the top of your game you never stop learning. That got me thinking about writing a series of books on sales, marketing and the law that would be different from anything else out there. As Mark Warby QC, one of the leading lawyers in the UK on sales and marketing law says: “Law that passes the lawyer’s test of comprehensibility is often enough a mysterious thicket to those without legal training. To be fair to lawyers, many do attempt to translate the inevitable complexities and jargon into plain English. To be realistic, however, few succeed. Even fewer manage it without over-simplification.”

By all accounts we pulled this off and certainly the legal eagles and those who teach sales and marketing seem to think so! But I didn’t want to stop there. I wanted to write a trilogy of books that would form the beginning of the Guru in a Bottle® Series. And these books needed to be a solid foundation for those who were about to build their careers in sales and marketing or those who simply needed a series of books on the subject area that didn’t scare the living daylights out of them. I’ll let you be the judge of whether we have succeeded. My hope is that students of sales and marketing will enjoy the books as much as Steve and I had fun making them. Guru in a Bottle® is a registered trade mark of Ardi Kolah

Book Review – Keen Reader?

Are you are bookworm? Could you write a few hundred words on your latest book? We are always on the look out for new features and articles for upcoming issues of our journal. To be featured in a professional journal can add to your CV and give you/your company publicity. Drop us an email with your thoughts/ideas and we’ll give you some guidance. We have previously featured by College delegates, as well as world-renowned marketers, so don’t be shy, you don’t have to be famous to be featured. Email emma@marketingcollege.com for more details.

Ardi Kolah is author of the Guru in a Bottle® Series and in 2003 was independently ranked as one of the leading gurus by the Chartered Institute of Marketing.

VIEWS - ROEKENS

The Experiential Revolution Gregory Roekens discusses a new form of industrial revolution where ‘experience’ is the new Holy Grail. INTRODUCTION n late May 1765, James Watt reached a critical milestone in his life and, in the process, for mankind too. That month Watt, with the help of Matthew Boulton, managed to find a way to perfect the steam engine, which at the time was GREGORY ROEKENS highly inefficient. The Newcomen steam engine was invented 50 years earlier to pump water from mines but the primitive design meant that 75% of the heat from the steam was wasted. Watt redesigned the Newcomen engine by adding a separate condensation chamber and a second smaller cylinder. Offering a dramatic increase in fuel efficiency, Watt’s improvement of the steam engine ultimately led to the Industrial Revolution, a social, economical and cultural revolution, which marked a major turning point in history where almost every aspect of daily life was influenced in some way. Two centuries later, on Christmas day 1990, it was Tim BernersLee’s turn to reach a critical milestone in his life and, in the process, for humanity again. That day Tim, with the help of Robert Cailliau, implemented the first successful web communication between a client and a server via the Internet. To achieve this historical event, Tim had built all the necessary tools for a working Web: the first web browser; the first web server; the HTTP protocol; HTML and the first web pages. Like Watt’s invention a couple of centuries before, Berners-Lee’s invention also marked a major turning point in history which is leading to the current social, economical and cultural revolution we are living; one that I call “the experiential revolution”. Gathering principles and theories from eminent figures in the marketing field, as well as using my own observations, this paper attempts to demonstrate that ‘experience’ is set to become the new holy-grail for marketers with ‘customer experience’ a core focus and tool for any future business and marketing plan. In this article, I introduce a quadrant that maps four types of customer experience and a ludic formula on how to deliver and manage great customer experiences. I start by briefly describing the key technological innovations that are fuelling this revolution and then look at new marketing principles that start to emerge by referencing theories from Pine and Gilmore1, Abraham Maslow2, Ogilvy3 and Bern Schmidt5.

Why experience matters – a couple of examples In developed countries, people are no longer selecting restaurants purely based on food quality and service level. Instead they want to have a ‘good time’ and, in their selection process, assume that any

restaurant will provide great food and great service regardless. So restaurants have to adapt and the main way for them to differentiate from their competition in today’s context is to focus on delivering great experiences for their hosts. Of course it still means providing quality food and top service but the prominent focus must be on the overall customer experience which often means augmenting the experience by adding intangible elements to the dining experience. For instance, ‘Dans le noir’ is a chain of restaurants where you eat and drink in pitch darkness. The experience is unnerving at first, but by suppressing the dominant sense of sight, you enter a world in which one is uncertain of its surroundings and rely on its other senses to experience the act of dining. Another example is Inamo which surfs on the technology wave by offering a high-tech experience to its guests where you order your meal, play games or book your cinema ticket on touch-enabled tables. Apple, the largest and most recognisable brand in the world, has customer experience deeply rooted in its DNA. Every single touchpoint is carefully studied and managed. When Steve Jobs realised that he had little or no control over one of its main channels (ie: the distribution channel), he launched the Apple Retail Store in a time where everyone else was contemplating the opposite (eg: Dell, Amazon, Zappos) and we know how much this is now a key part of the overall customer experience. But of course it does not stop there. Every single point of interaction is carefully monitored and controlled: online, on the phone, through the OS and indeed the product itself but also through its PR, supply-chain, partners and employees. Apple customers are constantly reminded why they made the right choice by selecting that brand thanks to an endless list of surprises and delights. Machine evolution and the rise of virtual assistants Samuel Butler once wrote: “What sort of creature man’s next successor in the supremacy of the earth is likely to be. We have often heard this debated; but it appears to us that we are ourselves creating our own successors”. Talking about the machine he continued: “We are daily adding to the beauty and delicacy of their physical organisation; we are daily giving them greater power and supplying by all sorts of ingenious contrivances that self-regulating, self-acting power which will be to them what intellect has been to the human race”. This extract comes from an article called “Darwin among the Machines”4 and what is particularly astonishing about Butler’s article is the date it was first published: 13th June 1863. Fast-forward to today and this could not be closer to the truth. Indeed ‘we are daily adding to the beauty’ of machines and ‘we are giving them greater power’, greater power to act on our behalf. Machines are closer than ever to replicating our cognitive process. As humans our cognitive process is a very simple three-step

cycle: Perception, Reasoning and Action. We perceive through our five senses, we reason with our brain and act with our arms, legs, voice, facial expression, etc. For many decades the cognitive process of machines (e.g. personal computers) was limited to ‘Perception’ through keyboards and mice, to ‘Reasoning’ via conditional programming (i.e. if this, then that) and to ‘Action’ by displaying text or images on a computer screen. In recent years though, extraordinary evolution in digital technology means that machines, as big as the cloud and as small as the smartphone in our pocket, start to show very similar cognitive process to humans. The cloud is quickly becoming a global brain where databases are neurons and APIs (Application Programming Interfaces) synapses. The smartphone has the ability to ‘perceive’ through three of our five senses: it can ‘see’ through cameras, ‘hear’ through microphones and feel through touchscreens and accelerometers. It can ‘Reason’ through amazing artificial intelligence and gigantic databases in the cloud and ‘Act’ by speaking, displaying, moving, and connecting to other services or saving information into databases.

Advances in Artificial Intelligence have been particularly exceptional in recent years. There’s many factors as to why there’s been such a quick evolution. One factor that particularly stands out is based on the main finding that Jeff Hawkins made a few years ago, when studying how the human brain works. In his book, On Intelligence6, he describes “how human intelligence is not defined by our behaviour but by our ability to predict”. That’s what our brain does constantly: it predicts. It predicts our next move, our next actions and reactions, how we walk, where we go, what we want to eat, how we’re going to go home, etc. It’s easy to identify when we predict with our conscious but what’s more interesting is how we predict at the subconscious level too. So for isntnace, hree’s a lttile epxreimnet. Yuo are albe to raed tihs praagrphae dseptie the fcat taht msot wrods are cmopletley mssiplleed. As lnog as the frist and lsat ltetre are in the rghit palce you are albe to raed tihs. Waht yuor biarn deos, as yuo raed tihs pragrapah, is perdcit the wrods. It saw ecah of tehm so mnay tmies bofere taht it has momersied tehm. Waht yuor brian deos mnetaly is ‘perdcit’ the rhigt spellnig frist and tehn raeds it. Tihs is a hghily singifcnat dsicoevry. For a mchaine to tinhk lkie us it msut be albe to perdcit.

VIEWS - ROEKENS

There are now so many ways to interact with machines, through speech-recognition, gesture recognition, image recognition, facialrecognition and even brain-wave recognition that it is becoming more and more natural to interact with them. One of the many consequences of the evolution of machines is that customers rely more and more on them to augment their lifestyle and assist them with their day-to-day activities. Let’s reflect on one possible outcome: The rise of the virtual assistant. Today’s virtual assistance such as Siri and Google Now are still in their infancy but, thanks to machine learning and the ongoing addition of new features, it is rapidly evolving and getting smarter and more knowledgeable over time. Siri and the likes are set to replace ‘search’ engine to become ‘do’ engine. Consumers will soon be in a position to be able to empower their virtual assistant to do things on their behalf. One likely challenge for brands, in the not so distant future, will be when consumers start to empower their virtual assistant to make purchase decisions on their behalf. In this new context, who is the customer? The consumer or the virtual assistant that will act as a proxy. How will brands engage and communicate with robots? How are they going to influence a purchase decision? A new marketing approach Our environment is changing massively. Smarter machines, commoditisation of robots and acceleration in technological innovation in recent years is altering our physical environment but is also leading to the creation of a new virtual one. An online environment where people converse, communicate, broadcast, express their happiness and frustration, share their likes and dislikes,

fall in love, purchase, transact and more. Whilst many foundations of traditional marketing are still pertinent, newer principles are also emerging to keep up with the changing nature of our world. Below are three key principles and observations that corroborate experience as a core facet of marketing in the 21st century. A new economy: experience economy In the July-August 1998 edition of the Harvard Business Review, B. Joseph Pine II and James H. Gilmore published an important article called “Welcome to the Experience Economy”1. In this article they argue that the next economical era is an era of experiences where ‘value’ is no longer in the production of products nor in the delivery of services, but instead is generated through the ‘staging of experiences’. As services, like goods before them, increasingly become commoditised, Pine and Gilmore identified a fourth economic offering they called the Experience Economy. They argue that this fourth economic offering has emerged because “consumers unquestionably desire experiences”. The most successful brands in recent years have all placed experience at the core of their strategies and operations and in the process demonstrated that indeed ‘staging experiences’ was a powerful metaphor. Take Nike or Domino’s Pizza for instance. Nike made the transition to ‘staging experience’ on the 20 May 2006 when they revealed Nike+, the first sensor + iPod kit, to the world. Thanks to this new product development, Nike owners are able to measure, record and track their distance and pace of a walk

or run. They are then able to track their performance, compare it over time or against someone else and share the results with friends. The pair of shoes has been augmented with technology to deliver a greater experience for the user, one that they will remember, one that they will keep going back to and one that they will evangelise to their friends about. Nike is not only making great shoes and delivering a consistent service, it is also staging an amazing overall experience through the quality of the product, the reliability of the service, the ease of the digital platform and app, the constant introduction of new features and experiences (e.g. Fuel Band, Kinect Training), the socialisation, the empowerment of communities and the promise of a healthy life style. Domino’s Pizza is another brand that has embraced technology to enable them to stage experience. While in the past you were limited to ordering a take away pizza at the till or, in most cases, over the phone, you can now order online through their website or via numerous apps. One particular feature is enhancing the pizzaordering experience: the order tracking. Once you have placed your order you can access a five-stage timeline where you track your pizza being made and delivered. In the past, most people would have interacted with the Domino’s brand for very little time – just a two minute phone call is all it takes to order a pizza. Nowadays they can end up interacting with the brand for more than 20 minutes thanks to the online experience. This is a new window of opportunities that Domino’s did not have in the past. At this stage, it is used primarily as a feedback and rating mechanism, but in the future this window could be exploited further by adding new experiences such as video entertainment, relevant news or little games. A new Maslow layer: peak experiences In 1943, Abraham Maslow published for the first time the famous “Hierarchy of Needs” theorising about human motivations. What it less known is the concept of “Peak Experiences” he described 20 years later in his 1964 work called “Religions, Values and Peak Experiences”. As a psychologist, Maslow was fed up with studying sick people because all they talked about was their sickness. Instead he decided to start looking for the healthiest people and study them. What he discovered, which nobody else did up to that point, as no one studied healthy people, was that these people had a greater frequency of peak experiences. He describes peak experiences as especially joyous and exciting moments in life, involving sudden feelings of intense happiness and well-being, wonder and awe. Maslow describes how: “the peak experience tends to be uplifting and ego-transcending; it releases creative energies; it affirms the meaning and value of existence; it gives a sense of purpose to the individual; it gives a feeling of integration; it leaves a permanent mark on the individual, evidently changing them for the better”2. Maslow adds that “peak experiences are transient moments

of self-actualization” and it is safe to say that in today’s developed world, where it is easier for individuals to reach the higher layers of the hierarchy of needs, peak experiences is a need and a feeling more people aspire to fulfill. A new Marketing Mix: from 4Ps to 4Es Firstly introduced in 1960 by Professor E. Jerome McCarthy, the 4Ps have been the most widely adopted model for determining a product offering and strategy and, to this day, still provide a key framework in most marketing plans. The 4Ps were later expanded to 7Ps to address the different nature of services. We can therefore argue that the 4Ps is a model born out of the ‘goods’ economy and the extended 7Ps out of the ‘service’ economy. What model would therefore best support the new ‘experience’ economy? On 19 April 2009, Brian Fetherstonhaugh, Chairman and CEO of Ogilvy One Worldwide published an article3 called: “The 4Ps Are Out, The 4Es Are In”. In his article Fetherstonhaugh argues that the 4Ps were born out of a different world and that a new model is required to deal with the new challenges of this new world, a world where “the consumer has seized control”. He proposes a new framework for the marketing mix of today, one that he calls the 4Es where Product is Experience, Price is Exchange, Place is Everyplace and Promotion is Evangelism. A couple of examples I usually use to rationalise the 4Es are Facebook and more generally the music industry. Facebook is a perfect example of the 4Es. Facebook is not a ‘product’; it is an ‘experience’. An experience that allows each of its 1 billion users to connect and stay connected with their social networks. Facebook has no monetary ‘price’; it is an ‘exchange’. A fiduciary agreement where users enjoy the Facebook experience in exchange for their data and time consuming advertising. Facebook has no physical ‘place’; It is ‘everyplace’, anywhere and anytime. And Facebook does not ‘promote’; it is their users that ‘evangelise’ and convince their friends and family to join. The music industry is a good example of where there has been a need to shift speedily from 4Ps to 4Es. From the 1930s up until the end of the 1990s, the music industry was producing ‘products’ (Vinyl, Tape, CDs) that they were selling at a fixed ‘price’ and spending a lot of marketing budget in ‘promotion’ activities to get people to buy in their local ‘place’ (i.e. music store, supermarket, etc). With the new millennium and the web revolution the music industry has had to adapt massively. In the past they did not care how often a customer listened to an album or a track once the purchase was made. In today’s world of music streaming it has become the most important factor. If a user streams to a particular track once or a thousand times it makes the whole difference; it is a thousand times more cash in the bank from this particular user. So the music ‘product’ must now be a music ‘experience’ which the customer will want to listen to continuously, the ‘price’ is insignificant for the customer as in most cases it is part of a cheap and unlimited monthly subscription.

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The ‘place’ is indeed ‘everyplace’ and the promotion widely done through ‘evangelisation’ where people share on social networks their favourite track and how often they listen to it. South Korean’s ‘Gangnam Style’ song is a great example of how global popularity spread through ‘evangelisation’ on Facebook and Twitter to reach the first ever 1 billion views on Youtube. Customer experience and the CX Quadrant Based on Pine and Gilmore’s experience economy1, Maslow’s peak experience2 and Fetherstonhaugh’s 4Es3, it is pretty obvious that the new holy grail for marketers in the 21st century will be experience, or more precisely, ‘Customer Experience’. Customer Experience (CX) is the sum of all conscious and unconscious interaction a customer has with a supplier of goods or services, across all of the touchpoints and over the duration of their relationship with that supplier. In the past, customer experience was only associated with rational experience and therefore confined mostly within customer services (how quickly a phone is answered, opening hours, aftersales support, etc.). Today’s growing recognition of customer experience as a core discipline across the business means that it encompasses all aspects: digital experience, shopping experience, product experience, user experience, discovery experience, community experience, advertising experience and employee experience.

Customer and Consumer The ‘C’ in ‘CX’ stands for Customer but it is important to note that it also means consumer. Positive experience matters for the ‘customer’ involved with the purchase or transaction but probably matters more for the ‘consumer’ (which may be another party) who will be consuming the goods or services. For instance a wife (the customer) buying a branded watch for her husband (the consumer) might have an excellent experience in the buying process but then it is all wasted when the husband finds the process of replacing the watch battery too cumbersome and too frequent which ultimately leads to the watch gathering dust in a draw. The CX Quadrant: four types of Customer Experience To generate a positive customer experience, businesses must deliver the right experience at the right time. This will depend on the mindset and predisposition of the customer at the time of the interaction. This CX Quadrant maps out the four types of customer experience businesses should adopt to deliver the most relevant experience. In this CX Quadrant (see above) we first map the customer’s point of view with the two axes: (Y) Do they need or do they want? (X). Are they in a passive or active mode? This then helps determine the attitude the customer is most likely to adopt in the four circumstances: Participate, Attend, Learn or Transact. With this map of customer mindsets it is then possible to plot which type

of customer experience businesses must deliver: Engage, Entertain, Educate or Enable. The cyclic arrows illustrate the perpetual nature of ‘wants’ being commoditised into ‘needs’ over time and the necessity for businesses and brands to innovate to reignite the ‘needs’ into ‘wants’ and to keep differentiating themselves from their competition. Turning ‘Needs’ into ‘Wants’ Understanding the power of ‘needs’ versus ‘wants’ is particularly important when looking from an experience point of view. Take flying for instance. For many centuries human kind wanted to fly. Until the Wright brothers invented the first airplane, the majority of people passively entertained the idea of flying trying to imagine how it would feel to fly like a bird. A few actively engaged, some at their own peril, to turn the dream into reality. What is particularly interesting in the conquest of the air is that the initial driver that pushed humans to defy gravity was a ‘want’, not a ‘need’. When consumers are in a ‘want’ mode they are more inclined to engage and to make some sacrifices in exchange of the want. The problem starts when the want is transformed into a need. In the early days of flying people did not mind giving up comfort in exchange for the experience of flying. However, today, flying has become a need and a means to an end rather than a want. People see planes as a flying metal tube where they are crammed in and where most of them cannot even see that they are flying. In this context airlines are stuck in an enabling role and are forced to educate people that flying is still a great experience. The key to successfully trade in this new economy is to turn ‘needs’ into ‘wants’ by staging experiences that people will want to attend and participate in. The ‘CX’ formula To help organisations transform their business into a customer experience focused enterprise they can adopt the following formula:

CX = b.(E-P-I-C) + b.(u-Neek)2 This memorable formula reads as: “Customer experience is equal to be epic and be unique” and incorporates a framework, an organisational structure, a behaviour and an attitude. A framework

CX = b.(E-P-I-C) + b.(u-Neek)2 ‘b.(E-P-I-C)’ stands for Brands, Environment, Platform, Interface and Customer and is based on Bernd Schmitt’s Five Steps to a CEM Framework5. These are considered to be the five key pillars of customer experience delivery:

1.The Customer – Experience Seeker Developing a multi-dimensional understanding of your customers is critical. This understanding includes cultural, sociological, behavioural and demographic analysis, and culminates in a detailed ability to articulate the needs and wants of various customer groups and segments. This customer understanding serves as the primary driver in shaping the business approach, aligning strategy and investment. 2.The Environment – Experience Influencer Building an understanding of the environment mainly comprises analysing market conditions, competitive factors, distribution channels, purchase process/environment and the service/ post-sale environment. Building knowledge of the customer’s environment ensures that businesses can deliver an intuitive, pleasing, seamless experience at every step of the journey. It is also interesting to note that until a few years ago, environment meant the physical world but nowadays, of course, it also means the new online virtual world. 3.The Brand – Experience Ambassador Branding focuses on the development of visual identity, assets, tag-lines, communications, logos and other brand assets, as well as marketing programmes and campaigns that help shape perception and define the brand in the marketplace. It is important to note, however, that a company’s “real” brand identity is a direct outcome of customer experience over time. To successfully develop an aspirational branding requires a solid and integrated experience be developed that is linked across all channels and touchpoints. This “integrated marketing” approach requires important up-front planning, clearly defined success metrics and consistent discipline. 4.The Platform – Experience Provider A company’s operational infrastructure is the platform from which customer experience is delivered. As a result, operational efficiency has a direct impact on customer experience. For businesses to move from an “inside out” focus to an “outside in” focus, operational excellence is essential. 5.The Interface – Experience Carrier Simply defined, the interface is where the actual experience happens. They are the touchpoints where interactions between customer and the brand occur, from a human-to-human; human-to- technology; or human-to-environment perspective. Particular care has to be taken to continually refine and optimise the customer interaction within each channel to produce desired and pleasing experiences.

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An organisational structure

CX = b.(E-P-I-C) + b.(u-Neek)2 ‘Neek’ is a cross between Nerd and Geek and is meant in a friendly way to represent the IT and Marketing departments. The ever-increasing empowerment of consumers through personal technology puts pressure on businesses to progressively invest in marketing technology and align their IT and Marketing in order to remain relevant to their customer audience. Eventually the marketing department will be the highest IT budget spender of most enterprises and it makes more and more sense for these two departments to work closer together and possibly eventually even merge together. Businesses are increasingly capturing more and more data and information about their customers and innovative organisations are introducing Marketing Technology Offices, a sub-department of marketing with a dotted line into IT, to help them close the gap between the collection of customer intelligence and the delivery of customer experience. A behaviour

CX = b.(E-P-I-C) + b.(u-Neek)2 ‘u-Neek’. Each customer is unique. From a practical and organisational point of view, customers may have attributes and patterns that warrant grouping similar profiles into segments but, from the customer’s point of view, they ‘want’ to be treated as a unique individual. Each customer or consumer expects personal relationships with brands and this is particularly true when things go wrong. Consequently CX focused businesses must adopt and embrace personalisation. This is an area that is commonly related to CRM activities in most organisations and this is definitely the right place to start. The main shift is one of refocus. CRM strategies are too often based on an ‘Inside-Out’ model where technology, platform, processes, data integrity and governance tend to be the primary focus with customer experience fulfilment coming second. However, the ‘Outside-In’ model of CXM, where the focus is on understanding and delivering against the needs and wants of each individual customer, enables an organisation to transform into a CX focused business. In this new connected world, personalisation can offer a considerable amount of advocacy. In October 2012, a dad posted a video on the internet that he titled: “Why LEGO is the BEST Company in the World”. It shows the reaction of his ecstatic son when Lego sends him the set he so desperately wanted, and which he saved for, for two years, only to find that it wasn’t available in the store anymore. The video receives millions of views and thousands of likes

which, with the perpetual nature of online video, will grow even further. Another company might have just ignored the personal plea and passed on the opportunity to create such a memorable moment for that one boy and his family. But the biggest opportunity missed would have been to emotionally move and influence millions of people, whilst increasing brand favourability in the process. An attitude

CX = b.(E-P-I-C) + b.(u-Neek)2 ‘b.(u-Neek)’. The last element of the CX formula recaps the importance of staging experience as a key differentiator. The most successful brands are also very unique, in their approach to business but also in the way they are perceived. Some brands take ‘staging experience’ quite literally. When Apple unveils a new product for instance, they are actually taking the stage with Steve Jobs, and Tim Cooks more recently, proudly showing their new products in front of a packed auditorium and the world. However, in most cases, differentiation through the staging of experiences is obviously a mindset, an attitude and indeed something to convey across the business and organisation. Conclusion There is a scene in the Pixar movie ‘Ratatouille’ where you see Anton Ego, a fearsome food critic, overcome with nostalgia when he tastes a particular dish. It brings him right back to his childhood where he recalls his mum preparing the same dish. The next day you see him publish the following critique: “Last night, I experienced something new: an extraordinary meal from a singularly unexpected source. To say that both the meal and its maker have challenged my preconceptions about fine cooking is a gross understatement. They have rocked me to my core!”. This is it. Brand, business or organisation must seek to ‘rock to the core’ by staging experiences that generate peak experiences. By creating positive and memorable events, people will want to share their experience and therefore become advocates and because they will want to relive the experience again and again, they are more likely to remain loyal. To sustain advocacy and loyalty, businesses can use the CX Quadrant to deliver the right type of experience in the right context, whether through Education, Enablement, Entertainment or Engagement, and the need to innovate to prevent ‘wants’ being commoditised into ‘needs’. Through the various examples in this paper, we have also observed how technology is often used to augment existing process, product and service to turn them into experiences. This is an excellent starting point for any company that wants to take a more user-centric approach: How can they leverage technology to

improve or augment a particular product or service? And because technology is exponentially evolving, there is an almost limitless number of ways to innovate. The adoption of customer experience is obviously not limited to brands and businesses. Other organisations such as schools, universities, healthcare, charities, cultural centres, government and so on will also see huge benefits in adopting this approach. For instance, the Essa Academy, a school in Bolton, has gone bookless and provides each student with a tablet on which all their courses are provided. The experience of learning in this case has been augmented with technology and made more interesting and captivating for the students. Teachers are also more accessible as students can contact them through the device when they do their homework in the evening. So there we are, living an experiential revolution where experience is the new Holy Grail. By the way, talking about Holy Grail, and Evangelisation and Peak Experiences, these are interestingly linked to notions we find in Religion. This is not accidental. Anthropologists have actually discovered that the most successful brands are actually religions. But that is for another paper…

...because technology is exponentially evolving, there is an almost limitless number of ways to innovate

BIBLIOGRAPHY 1. “Welcome to the Experience Economy”, B. Joseph Pine II and James H. Gilmore, Harvard Business Review, July 1998, http://hbr.org/1998/07/ welcome-to-the-experience-economy/ar/1 2. “Religion, Values, and Peak Experiences”, Abraham Harold Maslow, Ohio State University Press, the University of Michigan, 1964, http:// books.google.co.uk/books?id=untqAAAAMAAJ 3. “The 4Ps Are Out, The 4Es Are In”, Brian Fetherstonhaugh, Chairman and CEO of Ogilvy One Worldwide, April 2009, http://www. ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx 4. “Darwin amongst the machines”, Samuel Butler, 13 June 1863, http://nzetc.victoria.ac.nz/tm/scholarly/tei-ButFir-t1-g1-t1-g1-t4-body.html 5. “Customer Experience Management: A Revolutionary Approach to Connecting with Your Customers”, Bernd H. Schmitt, John Wiley & Sons, 2010, http://books.google.co.uk/books?id=VuCMIl55Iz8C&lr=&sour ce=gbs_navlinks_s 6. “On Intelligence”, Jeff Hawkins, Henry Holt and Company, 2004, http://www.onintelligence.org

Grégory is the Chief Technology Officer for AMV BBDO, the largest advertising agency in the UK, and lives by the motto: “tomorrow’s technology is today’s reality.” He has worked for several ad, marketing and digital agencies, as well as IBM, and with dozens of brands across all verticals. With his 15 years of expertise in Marketing and Creative Technology, Gregory’s mission at AMV BBDO is to identify how best technology can be leveraged to help advertising and marketing shift into the 21st century.

Grégory is a recognised industry expert, a regular speaker at marketing and digital events and is regularly featured and quoted by the press, more recently by the BBC where he talks about the future of shoppers empowering virtual assistants (http://bbc.in/xitC3z). He’s also an active Huffington Post blogger (http://www.huffingtonpost.com/gregory-roekens) and you can follow him on twitter at @roekens.

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How do successful companies manage customer relationships today? Neil Wilkins of Viper Marketing and Communications Group discusses managing customer relationships today and gives us some top tips for developing a successful CRM solution.

ow do you refine your marketing communications activity and optimise your ROI? One potential way is by developing customer intelligence, testing strategies and measurement mechanisms, whilst ensuring that the communication is personalised, NEIL WILKINS relevant, timely and provides value to the customer. Today, a much more scientific approach needs to be adopted within marketing planning and measurement to achieve this. From an holistic viewpoint customer intelligence is fundamentally made up by understanding the following: •

Who are your customers?

•

What did they buy?

•

How did they buy it?

•

Why did they buy it?

These appear relatively simple questions which have been referenced in many texts and marketing courses. Every business will have a view on the answers to the above questions but some of these answers are based on empirical evidence and qualitative studies rather than an analytical approach. When I was growing up, the successful local corner shopkeeper would know who was going into his shop. He would know their name and he would also remember when they last bought an item, what their purchase preferences are and even how these differed within a family e.g. the spouse having a particular penchant for a particular food or wine. The shopkeeper found out this information by building up knowledge of the customer, based on conversation and their purchases. He would also obtain local feedback on his competitors and potentially visit them. This gave the shopkeeper a lot of knowledge which helped him to make decisions on what to offer the customer, when to offer it and what the right offer would be. So in essence it informed the way he communicated with his customers ensuring that he did it in the most effective manner.

However, with the development and adoption of technology, globalisation and the increased mobility of the population it has become a lot more complicated to do business. The customer has a wider range of ways to interact with a company and to make a decision as to what they will buy. If you take Tesco as an example, they may have multiple shops within a town, you could visit one at lunchtime during the week and a different one at weekends for your regular shop; you may shop online and have your goods delivered. Tesco supplies groceries and a range of non-grocery items e.g. clothes, white goods, financial services, etc. They advertise on the TV, send out regular weekly emails, have an active Facebook page and have various Twitter profiles, plus they have a vast workforce who may interact with any customer. This means the traditional knowledge that the shopkeeper had no longer exists in the same form. The way a customer makes a purchasing decision has also

The way a customer makes a purchasing decision has changed, especially with the rise of the internet and the use of digital media.

changed, especially with the rise of the internet and the use of digital media. Given all these factors the complexity of harnessing all the relevant customer details (data) and managing the customer relationship has increased in its complexity. So how do successful companies manage customer relationships today? Even if you are not the size of Tesco, the likelihood is that you will operate through a number of different channels and your customers could be spread across the UK/Europe/World using a range of traditional and digital media to make a purchasing decision. They can make comments using social media regarding their experience and the product or service that they bought. In some cases they could become a brand ambassador and have influence on other potential customers in their networks who may then become customers.

The answer is to ensure you have the right data and customer relationship management (CRM) systems in place which can be used effectively by your staff. The data and systems should support all phases of the communication process from planning through to implementation and measurement. Many types of systems exist which may help you achieve your customer relationship management objectives. These range from data management applications which help you to create a marketing entity such as a customer and/or household and to merge the various customer records for an individual into a single view for that customer. A range of customer analytics and data mining applications are available. Other applications are very specific around email. For example, ESPs (Email Service Providers) have applications which enable you to manage your various email lists; review your email for deliverability; look at the rendering of the email in a range of devices; support lifecycle management programmes; set up trigger-based email activity (e.g. sending an email when you have an abandoned basket on the website) and the sending and monitoring of emails. Additional applications exist around social media for automation and measurement. With websites, a range of applications exist to support various activities such as SEO; tagging various pages; online reporting, etc. A company needs a solution which will support their marketing objectives. The solution may be provided by one vendor or may consist of various niche applications which are â&#x20AC;&#x153;best in classâ&#x20AC;?. The solution needs to work seamlessly and be accessed and used effectively by staff with different skill bases. So you need to consider how you may achieve a fully integrated solution that enables you to manage the customer across all the channels and which will support you appropriately in achieving your marketing objectives. Some of the niche vendors have recognised this and are developing additional functionality or are merging with other technology partners to provide enhanced functionality. Some are concentrating on their area of specialism and are providing appropriate APIs (Application Programming Interface) to enable a bespoke integrated solution to be built. When you are considering the options you should also ensure that the single customer view of the data is at the heart of the solution with the appropriate access to a full range of customer analytics which will support your various marketing acquisition and retention initiatives. In addition your solution may need to support campaign optimisation; scenario planning; detailed customer analytics; comprehensive attribution modelling; exception alerts; digital dashboarding; workflow management and functionality to improve team collaboration. There are a range of vendors some of which are very expensive and build for multinationals, and others that are reasonably priced and can make a significant impact to your business. In order to move forward you need to work out what will give the best return on your investment (ROI). The first step should be to compile a detailed

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