Posts Tagged ‘Differentiation’

These are trying times in the agency business. The latest research shows that advertising spending is projected to decline well into next year. Marketers are spending less and expecting the same (or better) results. The response from agencies is to cut costs.

But is there another way to respond to the upheaval in our business? What would happen if agency leaders invested the same amount of energy in creating opportunities as they do in solving problems?

Growing vs. shrinking

Is it realistic to think that marketing communications firms could be growing, developing and improving in this environment? Some are. But it means agency professionals have to stop investing all their time in “yesterday” and invest some of it in “tomorrow.” Disruptive change must be met with disruptive change.

Writing in a recent issue of the Harvard Business Review, executives of the consultancy Deloitte believe that “Unless firms take radical action, the gap between their potential and their realized opportunities will grow wider…Institutions must increase not just efficiency but also the rate at which they learn and innovate…”

If you’re serious about growing, then developing new products, services, and approaches should be at top of your daily “to do” list. Don’t wait until your calendar eases up, because it never will. As successful entrepreneurs know, business building means acting rather than being acted upon.

In turbulent times like these, marketing communications firms are scrambling to identify the best business strategy not only to get them through this recession, but to position themselves for success once the recession is over.

The natural response is to “try a little bit of everything”; to expand your services, broaden your capabilities, and try to appeal to more clients. It seems like common sense, but it’s exactly the wrong response. The best growth strategy — in good economies or bad — is to decide what not to do.

Expand by narrowing

Imagine two architectural firms: one that’s extremely focused with a clear value proposition, and one with an unfocused business strategy that attempts to do everything for everybody. Which of these two firms would have:

• The strongest earning power?
• The largest geographical market area?
• The fewest competitors?
• The greatest degree of respect from clients?
• The most sophisticated clients?

The answer in every case is the focused firm. Let’s look at each question individually.

The greatest earning power. It’s a simple fact that the specialist earns more than the generalist. This is true in medicine, law, engineering, architecture, consulting, construction, you name it. This is because the specialist knows more, and we live and work in a knowledge economy.

The largest geographical market area. Focused firms draw clients from all over the globe, not just from their own Zip code. That’s because what they’re selling isn’t available down the block from some other firm just like them.

The fewest competitors. The easiest way to narrow your competition is to narrow your focus. There are far fewer specialists than generalists, and the law of supply and demand dictates that the less supply the greater the demand.

The greatest degree of respect from clients. Knowledge and expertise equals respect. An effective value proposition allows your firm to develop and leverage its intellectual capital. This makes you valued – and respected – not just for what you do, but what you know.

The most sophisticated clients. In the boardrooms of professional firms everywhere is heard the lament “If only we had better clients.” A quality value proposition attracts a quality client. A business that proclaims “we’re right for everybody” is logically going to attract both the good and the bad.

As business strategist Chris Zook writes in his insightful book Profit from the Core,

Having a clear sense of business boundaries and of the definition of your core is a critical starting point for growth strategy. Identifying the core of your business is the first step in determining how to grow.

To understand the changing dynamics of the “value chain” concept, observe what’s happened to the music business.  Consumers are still spending roughly the same amount of money on music, but the money isn’t going to the record companies and music stores; it’s going to iTunes.  The money in the music business value chain is still there – it just moved.

The same is happening in the advertising agency business.  Marketers are spending, but they’re spending in areas of the value chain that aren’t owned by agencies.  Instead of trying to squeeze the last bit of value from traditional sources of revenue, agencies should instead be focused on finding a different spot on the chain.

Finding the most profitable areas of the value chain

To continue to profit in the marketing business, agencies must select a place on the value chain where the offerings are still underdeveloped. The problem is that most agency business models are still centered around the idea of “production and distribution of advertising” — a spot too far down on the value chain to have any real or perceived value in today’s multi-channel marketplace.

Here’s how to think about your firm’s value proposition:

Most agencies base their value propositions on overdeveloped services; they are placing themselves on the wrong side of the value chain.  By focusing on the underdeveloped features or benefits of the category, you are in effect not just positioning your brand for where the profits are, but for where the profits will be.

Underdeveloped offerings in the agency world include:

Online Account Planning

While many agencies have a well-developed account planning function, they have yet to fully realize the potential of the internet in gleaning customer insights.  For example, in addition to using traditional account planning tools Butler Shine Stern & Partners uses services like MotiveQuest to track consumer behavior for client Mini.

Analytics

Virtually every agency can benefit from adding the discipline of analytics.  Besides helping to meet clients’ demands for accountability, analytics can serve as the foundation for value-based compensation agreements.  Kansas City-based Bernstein-Rein promises clients the ability to “organize, evaluate, measure, and interpret the right data to make it valuable.”

Social Media

As the marketing value chain continues to emphasize non-paid online solutions vs. paid offline solutions, agencies must establish competent services and tools to help their clients maximize the world of social media. Media Logic, an innovative agency located in Albany, New York, has a suite of resources that help them monetize this important area.

Other underdeveloped agency services include:

Digital: Usability testing, behavioral targeting, software application development (think smart phone apps)

Branded Content: Custom publishing (both online and offline), branded channel development

Customer Relationship Management: Customer database analysis, customer service programs

Reputation Management: Online reputation monitoring and reporting

Conversational Marketing: Conversation strategy, online community development

Customer Engagement Marketing: Crowdsourcing, product co-development

Intellectual Property Development: Content syndication, sale or license of IP

And much more …

So now the question is, which side of the value chain are you on now, where do you think you should be, and what are you doing to get there?

In every category, it’s virtually inevitable that the brands and companies that market them will become more and more alike. In the seamlessly connected world of today, this phenomenon is both accelerated and exaggerated. Studies show that an increasing number of categories are becoming more commodity-like in the eyes of consumers. In categories ranging from home improvement to insurance, brands are seen as becoming less differentiated.

The copying mechanism

The underlying explanation is the “copying” mechanism that has allowed humans to survive and evolve for the past few millions years. The work of social observers like Mark Earls demonstrates the simple truth that humans are social creatures, not independent agents, and that as such rely on copying to learn and survive in society. In fact, says Earls, “Copying is our species’ number one learning and adaptive strategy.”

Thus products and product features are mostly copied rather than invented. Copying is perceived as less risky, and risk is what most humans strenuously seek to avoid.

There is, of course, an important difference between real risk and perceived risk; in marketing the real risk is simply copying what other brands do. Copying leads to undifferentiated brands, commoditization of entire categories, and erosion of pricing power.

Duplicating success?

The temptation to copy in business is irresistible. We logically conclude that we can replicate another company’s success by duplicating their features, attributes and capabilities. But copying diverts companies and brands from doing what they do best and instead puts them on what has been called “the long road to unfocus.”

The illogic of all-in-one

The other force at play that leads brands to become homogeneous is the natural tendency to define their value proposition solely in terms of product attributes. Believing that the more product attributes a brand can claim the more valuable it will be to the customer, brands continue to add more and more features until they become “all-in-one solutions”.

The problem is, of course, nobody buys a product because it can do everything, but rather because it can do something. Nowhere is this more apparent than in packaged goods, where most categories ultimately produce a “total solution” brand. Witness Colgate Total, Crest Complete, Olay Total Effects, and Tide Total Care. Can one laundry detergent really stand for protecting color, enhancing softness, cleaning thoroughly, fighting stains, and preserving fabrics?

After years of marching down the “complete” path, P&G is realizing that a single benefit brand is often stronger for the simple reason that it stands for something. It promises to do a specific job extremely well instead of attempting to do a lot of jobs moderately well.

What’s true for package goods brands is true for agency brands. There is no competitive advantage in doing simply what others do; or worse, attempting to do everything others do.

Most students of serious business schools learn that there are two – and only two – real strategies in business: low cost and differentiation. Some brands, like Wal-Mart, pursue the low cost strategy with great success. In fact, Wal-Mart makes a series of very conscious trade-offs (sales help, ambience, urban convenience) in order to be able to deliver on its low cost strategy.

Apple’s strategy, on the other hand, is differentiation. The iPhone and most other Apple products are clearly different and generally higher priced.

A brief strategy quiz

What would you say is the strategy of most agencies; low cost or differentiation? Where would you plot your agency on the following chart?

Needless to say these are very different – in fact, opposing – business strategies. You have to do one or the other very well in order to be competitive. You can either have a highly efficient, low-cost offering (not a business most agencies aspire to be in), or a highly differentiated, higher-cost offering.

The operational implications of these two basic strategies is significant. An organization would obviously make very different decisions about it staffing, offices, and technology depending on which of these strategies it pursues — which means you can deploy one or the other of these strategies well, but not both.

Saying is not being

Here’s the problem. Virtually every agency would say that their strategy is differentiation, yet  talk, act, prospect, and price as though their strategy is low cost. If agency leaders truly embraced differentiation as a strategy, they would:

So, by not authentically pursuing a strategy of differentiation, agencies are defaulting to a strategy of low cost. This could explain why:

• Prospective clients and search consultants insist that agencies submit detailed information about their cost structures
• Prospects develop spreadsheets designed to carefully compare the costs of one agency against another.
• Agencies get lined up and “shopped” based on hourly and blended rates.
• Procurement agents (the same people who buy offices supplies) are now a primary decision-maker in most major agency reviews.

This isn’t to say that agencies shouldn’t try to maximize efficiency by streamlining their processes and taking as many of the costs out of their system as possible. But it’s easy to start believing that efficiency is what you’re selling (and the procurement community certainly does their best to reinforce this). An agency doesn’t sell efficiency, but rather effectiveness.

Finally, what else do you know that is bought mostly on price? Commodities, of course. And that’s a place agencies can’t afford to be.

Ask any agency principal what he or she dislikes and avoids the most and the answer will almost always be the same: cold calling new business prospects. Not only is this the most dreaded activity among C-level agency executives, it’s also among the least effective.

Cold calling has always produced only modest results and today’s avoidance-enabling technology only makes it easier for prospects to hide from your phone calls and ignore your e-mails. I routinely hear from agency principals how traditional new business prospecting methods are becoming less and less effective.

Hard to reach

The dynamics that make it more difficult to reach a client’s prospective customers are the same forces that make it harder for agencies to reach their own prospective customers: media proliferation, multi-tasking, message overload, and short attention spans.

If you feel guilty for not spending enough time cold calling and cold e-mailing, here’s a really good excuse to stop: it doesn’t work.

A better alternative

Management genius Peter Drucker preached that a good marketing program makes sales irrelevant. Says Drucker, “The aim of marketing is to make selling superfluous.” The aim of marketing is to make a product so relevant and compelling that it literally sells itself.

If you think this is mere hyperbole, consider the outrageously successful iPhone. Can you imagine ever seeing an iPhone salesman? Instead, eager customers are lined up in front of Apple and AT&T stores for hours.

If agencies spent more time and energy on making and marketing a relevant, differentiated “product” (their own agency), they could spend a lot less time and energy trying to sell it.

A multi-dimensional approach

Witness the hyper-successful Crispin Porter + Bogusky. Not only have they devoted themselves to making a differentiated product, but they have invested considerable time and money marketing the CP+B brand to the business community. Getting mounds of press – both offline and online – is the result of a concerted effort by a dedicated team of PR professionals whose only client is the agency.

Most of the agencies that constantly kick themselves for not devoting enough effort to “prospecting” are the same ones that have devoted below-average resources to marketing their own brand. That’s no coincidence.

In addition to focusing on the business press, entering the awards shows, and joining business organizations, the most progressive agencies have also engaged in an online conversation with both their peers and prospects. In place of a traditional PR plan, you need a multi-dimensional publicity plan that includes:

• Search engine optimization (SEO) program
• Postings and comments on relevant blogs
• Search engine marketing (SEM) program based on keywords
• Letters to the editor
• (both offline and online)
• Landing pages (based on owned URL’s)
• Paid and reciprocal links
• Listings in both paid and complimentary online directories
• Wikipedia entry
• Membership in relevant online professional networks
• Facebook page
• Participation in professional online forums
• YouTube channel

The only limit is the amount of creativity you apply to marketing your own brand. So stop thinking sales and start thinking marketing, which starts with how your firm is positioned in the marketplace. Trade the time and money you spend “selling” your brand and invest it instead in differentiating and marketing your brand and you’ll get a much better return on your investment.

By Ron Baker

There is no such thing as a commodity. Anything can be differentiated, which is precisely the marketer’s job. Believing that your firm – and the services it offers – are commodities is a self-fulfilling prophecy.

If you think you are a commodity, so will your clients. How could they believe otherwise? This notion of selling a commodity is a pernicious belief. It leads to price wars, incessant copying of competitor’s offerings, lack of innovation, creativity, and dynamism, as well as suboptimal pricing strategies.

Imagination is the only limitation

The potential for competitive differentiation is only limited by your firm’s imagination. Many leaders lament that since their industries are mature, commoditization is inevitable, despite all the empirical evidence surrounding them that this is simply not so.

Even the lettuce business has been differentiated by prewashing, cutting and packaging the vegetable – along with some salad dressing on the side – for the customer in order to save time. As a result, from the late 1980s to 1999, a $1.4 billion industry was created. And Great Northern Wholeave Lettuce has come up with the innovation of ripped lettuce (not cut), offering restaurants a way to handle waste and save time. Wholeave Lettuce commands a premium price.

Purging the commodity word

Unless your firm decides its strategy is to compete based on price – such as Wal-Mart, Costco, H&R Block, and Southwest Airlines – you cannot create a loyal client base solely on the basis of being the low-cost provider. If clients are attracted by your low fees, they will easily leave for another firm that offers even lower ones. Cutting your pricing in order to attract a client encourages them to ask constantly for future price concessions, thereby subsidizing your worst clients at the expense of your best ones.

There is absolutely no excuse – none – for firms to think of themselves as commodities. Any company can compete on price; it is truly a fool’s game. On the other hand, competing based on your ability to create value and intellectual capital requires more thought, creativity, and investment.

Not just more business, but the right business

If your firm finds itself continually competing on price, it is taking the easy way out – since price is always the easiest way to win marginal business. It is also the obvious factor to blame for an organization’s failure to offer value-creating ideas and services. Constant discounting signals that you are targeting the wrong client segments, lacking a viable value proposition separating you from the competition, not getting your share of new business success, or offering too much service in your basic package.

Don’t let your firm acquire a core competency in cutting prices by falling into the commodity trap. Especially since there’s no such thing as a commodity!

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Ron Baker is Chief Value Officer of Ignition, a consultancy devoted to helping marketing organizations create and capture more value. He welcomes your comments at rbaker@ignitiongroup.com