CHAPTER 7
The Sixth Principle of Digital Business Strategy—Engine of Growth
As we’ve seen in the previous chapter, once we establish our “lens lock” we can use a combination of website analytics and business characteristics to plot where our business is at any moment in time on the Ionology quadrant. Once we’ve established where we are, we can decide where we would like to be. The ultimate destination is to hold the prime position in our chosen market.
There are a few additional rules regarding the quadrant. It’s not possible to be in more than one position on the quadrant at any one time. A classified ads business can have two sets of customers: the advertisers and readers. While they both require the same product, their needs are very different, and therefore, the business may require two separate strategies for dealing with each customer type resulting in two separate strategy boards.
It’s not possible to be in between two plot points. We must start at one position on the quadrant and choose to either enhance the position we’re at or move position to a different point. As we’ll see in the next chapter, the path between two points on the quadrant is plotted by laying out the major steps that should be taken to reach the destination.
Most organizations can claim primacy if they adjust the lens lock to match their strengths. Let’s look at an example: Majestic Fruit and Vegetable Distribution is the prime player in their home city as they distribute over 40 percent of all fresh fruit to hotels and restaurants in their locality. Should their ambition be to simply maintain their position, then they need to continuously innovate and improve to keep out competition from more advanced players while maintaining their local advertising and sponsorship activity. However, should they change their lens lock and decide that they want to become a major player within their state, not just within their local city, they soon find that they are no longer a “prime” business. In fact, their distribution covers less than 5 percent of the market when we look at the entire state and we soon run into much larger better established businesses that have more resources.
The neighboring city has a smattering of small local distribution businesses that Majestic would consider as being microbusinesses (so small as to be incidental). It would also have city-specific suppliers who have grown up over time to be similar in size and ability to Majestic. There are also national competitors. These are large multinational suppliers. They tend to supply the large hotel and restaurant chains and aren’t that interested in the small independents. Majestic is too small to even consider going for a national hotel or restaurant chain like Hilton or Hard Rock Café. It sees its target market as the independent restaurant or small owner-run hotel chains.
Before Majestic can define its move on the Ionology quadrant it must add perspective. In Principle 1, know yourself, we ask that a business state its strategic ambition.
In this situation, Majestic has a desire for growth but can see that without a unique value proposition powered by an innovation its options are limited. In essence, they are performing an attack on an incumbent supplier who should not be underestimated because they are good at what they do, they are well managed, and they are well resourced.
At this moment of planning, when looking at becoming a statewide distributor leveraging its single city foothold, Majestic can be concluded as a niche player because it services a single market within a single city. It has three engines of growth options:
Option 1: Grow via advocacy, Option 2: grow via attention, Option 3: grow via authority
An overview of each move:
1. Try to grow via advocacy: That is to try and expand its sales team and build new relationships with new restaurants and hotels in new areas outside of the city limits it currently operates in. The challenge with this kind of growth is that existing suppliers are already operating in this area and if anything Majestic is disadvantaged as their goods must be shipped further from the distribution center than local suppliers. Staying in advocacy is going to be a long hard slog if they are to gain market share in what are already well-serviced new territories. In fact, striving for growth in this way is likely to bring a risk to Majestic as the only obvious lever available to the business on which to base its beachhead in new territories is to reduce its prices and effectively start a price war.
2. Move from advocacy to attention: A second option open to Majestic is to deploy an attention-based marketing program to try to pick up disgruntled customers or new start businesses that pop up in the newly expanded territory they plan to service. They consider sponsoring a golf tournament in the new territory but discover that this tactic has been established by their competitors and is in its 20th year. They look to spend money on trade advertising but find it difficult to justify the money spent as their competitors are already established and doing the same. They look to find sales opportunities using SEO optimization, but when they look at the activities of their competitors, they realize that this is already a heavily contested space and shifting a competitor from a natural search engine position could be almost impossible. The same challenge applies to paid search; the cost of acquiring a new customer is prohibitively high.
3. Move from advocacy to authority: While this may seem like the only option available to Majestic, it is the hardest to execute because it presumes that the business can transform itself through innovation and present a new alternative proposition to the marketplace. As we know, being an authority is measured by the outcome that our business is referenced frequently for the innovations we provide by industry publications and experts. To achieve this outcome, Majestic will have to divert much of its profits into creating a sequence of new industry changing innovations in order to gain such recognition. As a third-generation family-owned wholesale business, they prefer to modernize over time than to radically innovate in order to go grow. Innovation simply isn’t within their DNA.
How Majestic Got to Where it is Today
Majestic is a 35-year-old business. If we lens lock our view on their home city, we can see how the business has grown over this time. In the early days, it was unknown and the founders had to establish their credentials with a few trusting clients. It grew slowly, built a good reputation, serviced their clients well, and acquired one customer at a time principally by the founder knocking doors day after day and asking for business. Once the business started to accumulate profits, it started to advertise to build brand recognition with unfamiliar customers. The sales force grew and account managers were charged with delivering a quality service to their existing customers as well as seeking new customers.
Majestic’s 35-year journey in its home city
The business continued to grow by repeating its marketing formula over and over: buying ads, sponsoring events, and servicing customers to the best of their ability. They maintained their advocacy activity as they moved to attention. They discovered that “bought media” helped account managers win new customers and it gave comfort to existing customers that they had chosen the right supplier.
Over the last 20 years, the business has acquired several smaller competitors and expanded its range into more exotic fruit and vegetables as well as prepared foods. Its logistics center has grown, it now has a telesales team and an e-commerce website, and of course it still maintains its account executives’ weekly customer visits. Within its own city and logistic limits, Majestic has slowly grinded out a position of primacy.
As the second generation of family owners matures, however, they want to reset the lens lock and grow the business further throughout the state. The market is different now than it was 35 years ago when the original founders started. There weren’t any national competitors back then. Logistics were simpler, customers were less demanding, and there was a more willing acceptance to try the “new local guy” based on reputation.
If Majestic was to expand into several cities, it didn’t want to take another 35 years to do so. They didn’t have enough cash to acquire and assimilate competitors and getting in the door of what are already well-serviced customers was going to be a challenge for even the most experienced account executives.
Faced with these three potential strategic business moves, the senior management team within Majestic considers the consequences of each move along with the actions and challenges they’ll face.
Trying to Grow Via Advocacy
We know that Majestic started off with a strong sales ethic and built a brand by spending wisely on advertising and brand promotion. It grew into a position of strength within its native city by servicing owner-managed restaurants, hotels, and small hotel groups. It now has a desire to grow into surrounding cities and would like to have a marketing-led strategy that would enable this growth.
An abbreviated version of its strategy could be written as follows:
Know Yourself
Diagnosis: The company has desires to grow into other geographic markets but hasn’t yet established a point of differentiation. It hopes to leverage its long track record of good customer support, but it doesn’t yet know if that’s enough to gain market share.
Strategic ambition: To grow organically to become a prime statewide supplier of fruit and vegetables to its target audience within the next 5 years.
Unique value proposition: We are the state’s longest established providers of fruit and vegetables to small and medium restaurants and hotels.
Each of the above makes for a poor strategy.
The diagnosis is based on a leap of faith assumption that customers can be gained by simply replicating practices that have worked in Majestic’s home city for 35 years, elsewhere.
The strategic ambition assumes that competitors can be outperformed and customers persuaded to change supplier especially to an “unknown” supplier like Majestic who have no track record beyond their own home city.
The unique value proposition assumes customers want to seek a new supplier that has been established for several years in another city. It’s hard to see how this proposition actually offers any value to the customer.
Know Your Customer
Volume: Using a Google Adwords tool entitled “Keyword Planner,” Majestic has found that there are over 100 searches per month in their state for people seeking “wholesale fruit” or “wholesale vegetables.” They believe that this shows there is demand beyond their own city for a new supplier.
Task: Unknown
Intent: Unknown
While they know the volume of search engine activity in their target state, they don’t know the task of the searcher when they type these keywords into their search engine. Are they looking for a supplier of wholesale fruit and vegetables or could it be that they are home users wanting to find out if they can get low-cost food online? Moreover, search volume doesn’t tell us the intent of the searcher. Assuming 20 percent of the searchers are from independent restaurant owners and hoteliers, are they seeking to purchase fruit and vegetables? Is their intent to switch supplier or are they simply looking to price check?
Until these major assumptions are validated, these data are all but useless. The marketing leaders within Majestic must run experiments to understand if there really is statewide demand for another wholesaler in this market. Rather than rush to create test websites, the leadership suggests that this is a major mile marker that must be understood and so they place it into the strategy execution section of the strategy board (Principle 7, strategy execution).
The business knows the volume of people searching online for wholesale goods, but it doesn’t know if it’s their target market, and if it is their target market, what will make them switch to a new supplier. Answering these kind of unknowns is a primary task of any marketer and as we will see, something that can be completed rapidly. How they find the relevant data is not for debate during strategy meetings, only that it must be found.
Next the business leaders need to look at the competition they must either displace or outflank.
Competition
Competitors: They are numerous and better established and some have access to greater resources than Majestic.
Proposition: Each of the competitors has their own website and each claims to have the biggest, fastest, freshest, and widest selection of goods. They all claim to offer the best service and they all want to become “your supplier of choice.”
Force: Force is a calculable number. It’s a combination of the size of the company in any particular market and how actively they are marketing. The mass of an organization is simply a measurement of their turnover as a percentage measured against other competitors. If the turnover of the largest competitor is $10,000,000 and the second business has a turnover of $5,000,000, the first business has a mass of 100 and the second has a mass of 50.
Acceleration is a measurement of how digitally active a business is. This can be obtained from Ionology.com/dmd/. The number is generated by checking out the frequency content is produced, the number of inbound links, and how many people are citing the business for its innovations.
A business with a large turnover but with low activity can theoretically be displaced by a smaller business that’s much more active. A large business that retains a prime position in Majestic’s target market will be hard to displace even if their marketing activity is much less than that of Majestic. A large mass with low momentum is very difficult to shift using attention-based techniques.
The only real way to shift a larger prime player in a new market when you have lower resources is to out-innovate them.
Resources
Time: The time required to operate an advocacy model is high. It typically requires a marketer to prepare print marketing materials to support sales representatives and create e-mail marketing campaigns to target existing customers and new sales opportunities gained by the sales team. Time is often spent on social media although engagement is low due to the lack of having something innovative or unique to say.
Talent: The term “talent” refers to leadership talent. This is often not present in an advocacy approach. The organizational leadership usually let the marketing team get on with their job and there’s little in the way of interference.
Cash: There is a low cash requirement as most of the marketing collateral is distributed to existing customers by the sales force as well as via e-mail and social media.
Advocacy Summary
In conclusion, this strategy is perceived to be the lowest risk model as it simply extends the operational functions of the current business and attempts to step-and-repeat the actions they have perfected over years of being in business within their own city limits.
The reality is that this is not a marketing-led strategy; it’s a sales-led plan. They defend their current position in their home city where they are well known and respected. To grow statewide and deploy these same actions assume that this model will work. It’s not certain whether it will, but if it does work growth will be extremely slow.
The risk to the business is that they lose focus on their local market if they extend themselves into the new market.
Trying to Grow by Attention
When trying to grow a business via attention, it’s not unusual that the business first establishes its ability to carry out an advocacy model. This means that they have base technology and marketing requirements fulfilled. They effectively use Customer Relationship Management (CRM) tools as well as e-mail marketing and social media. They typically have low volumes of social media members and e-mails are typically only well received when they there are sent to customers that wish to receive them.
Attention modeling is simply buying the attention of customers interested in a product or service. This usually means paid advertising on search engines, display ads, and sponsorship. Any marketing activity where there is a direct cost of sale associated with obtaining the customer is said to be part of an attention plan.
Obtaining customers via attention modeling requires a different kind of website than using advocacy modeling. In advocacy, the customer finds the website because of the marketing efforts of the sales force and the internal sales team. As advocacy is all about supporting other sales efforts that are going on, customers tend to use the advocacy website to look up more information on the person coming to visit them, the history of the company, and who else is using the company. Advocacy websites should be built to highlight the people within the organization.
When it comes to attention modeling, the customer tends to have a completely different priority. They are online to perform a task. When they are searching for “wholesale fruit,” they typically want to see the price of wholesale fruit and vegetables. They are less interested in the sales representatives and account managers. They want to answer their own questions first before they’ll be interested in finding out about the people within the organization. For this reason, attention models favor e-commerce style websites. They are often built to elicit the best search engine results and help the searcher complete the task they came to do.
This is why it’s difficult to have an advocacy plan and an attention plan at the same time. The same content, marketing activity, and website design should not be used.
When creating the advocacy strategy Majestic found they were missing some key pieces of information. They hoped to pick up new customers via digital marketing and used information from Google Adwords to show that there was indeed demand for their services statewide. What they didn’t know was if the customer was looking for the price of wholesale fruit and vegetables or if they wanted to change supplier. To obtain this information, they needed to run an experiment. Attention modeling is the way in which experiments are conducted.
The challenge most organizations like Majestic face before they choose an advocacy or attention model is that they need to know the customer task and intent. They don’t want to create an advocacy website if they need an e-commerce website and they don’t want to make an attention-driven e-commerce website if customers don’t want to use it. The solution to this conundrum is to build a temporary website from a template and test the proposition.
There are many locations on the web where a marketer can purchase an e-commerce template, rapidly stock it with products, and link it to a shopping basket. The marketer should populate the website with outrageously low-cost products and then purchase search engine ads. The marketer may not even use the brand of their own company for the experiment.
The purpose of the experiment is to find out if an attention model was deployed and we had the lowest cost product on the market, would our unfamiliar brand be able to attract customers and what would it cost to acquire these customers.
Most businesses can take this kind of testing approach. Within 3 days, a website and ad campaign can be up and running and within 2 weeks an abundance of data gathered to see if attention modeling will work. If it does and the business is able to acquire customers, even at a loss, it means that we at least know the “Task” that customers were trying to perform and that their “Intent” to was purchase.
The business now has a choice. Does it run an attention model that leads the sales operation in attracting new customers or does it run a pure advocacy model where the digital marketing supports the sales representative’s efforts rather than leads them.
The resource requirements for an attention model are different from that of an advocacy model. With an attention model “Cash” is often the defining parameter as the marketing “Time” is usually quite low once things are up and running and leadership “Talent” isn’t needed.
An attention model requires a different kind of marketer than that of advocacy modeling. The advocacy model requires a marketer capable of creating cohesion between the business, its sales force, and the customer. An attention model requires that the marketer uses data to find the lowest cost of acquisition, to displace competitors, and to win the battle of the search engines. An attention model requires much more scientific analysis of data, while the advocacy marketer requires much more empathy with the customer and sales force.
Attention Summary
This experimentation technique can be used to validate assumptions. It can also be used to run a profitable e-commerce business assuming competitors can be displaced, customers can be won, and the cost of acquisition is at a profitable, sustainable level.
The challenge many attention-driven strategies have is that the cost of acquisition of a new customer is not static. While it can be profitable one week, the next week a new competitor can push the cost of acquisition up in paid advertising and displace the business from its coveted natural search engine position.
Move to Authority
As mentioned in the previous chapter, becoming an authority requires earning media coverage, inbound links, and social media shares due to repeated innovation. While most businesses claim to be innovative, they are actually creative. They rarely have a sustainable program of innovation designed to differentiate them within the marketplace or indeed change the market.
The new young leaders of Majestic, however, are keen to explore this avenue. They investigate many methods of creating innovative concepts in a sustainable way. The on-trend method of innovation planning is Design School (D-School) thinking from Stanford University. The leadership team meets to explore if they can reinvent products and services to help them get into their expanded marketplace with a more unique offering.
In the Seven Principles of Digital Business Strategy they return to Principle 1—Diagnosis. This section of Principle 1 demands that we truly understand the customer’s challenge(s) and make our product and services to solve those challenges.
Mark is the youngest leader of Majestic; he invites several customers from their existing client base in for a hosted session of D-School innovation. They soon discover that their customers have different challenges from those they thought they had.
The current Majestic service delivers fruit and vegetables in the morning to allow chefs to prepare food for the day ahead. What Majestic’s customers explained during the innovation session was that many of the more delicate fruits and vegetables were starting to wither by the evening forcing them to put them into refrigeration. The fridge was taking up valuable real estate within the kitchen and they felt that more frequent deliveries, perhaps two times per day would allow them to reduce the amount of refrigeration they needed.
They also complained that they found themselves short of key ingredients and found it difficult to order the exact quantities of products leading to wastage.
If Majestic was to deliver further away from its base it couldn’t offer more frequent deliveries for a variety of reasons including fleet availability, parking, and unloading restrictions and the need for new distribution centers.
As the innovation process continued, they understood that customers would find it very convenient if they could order key ingredients with 2 hours’ notice and have the goods delivered fresh to their kitchens. This could in essence allow them to regain valuable floor space and have fresh produce with key ingredients available within 2 hours 24/7.
Mark and his team looked at new pedal bike delivery methods, chilled storage using liquid nitrogen, and small local warehousing. They felt that a model of having key ingredients delivered and refrigerated at key locations around their target cities with rapid bike delivery would allow them to not only differentiate themselves but also charge a premium for the goods.
They set to work trialing this method by first creating a brochure that explained the service. The brochure contained some stock photography, illustrations, and photos of the team at Majestic. When the sales force presented this concept at the opening meeting with their new potential clients in the nearby city, they found that the customer was immediately receptive to the concept and wanted to know more. Before having this brochure, they found that potential customers were reluctant to engage. They claimed they already had a supplier who met their needs.
For Majestic, this was their first encounter with game changing innovation. It didn’t take them long to realize that if this gets them “in the door” with new customers, all they had to do was to continuously innovate to differentiate themselves and use these innovations as the small end of the wedge. Their investment in trialing these innovations was small at first and leveraged the assets within the business to allow them to modify their existing service and enhance the customer experience.
These innovations made marketing Majestic easy. They now had a unique value proposition. They were now the only supplier able to offer 2-hour delivery 24/7. As the uptake of the service was generally low, yet the impact in terms of a differentiated message was high, the firm was able to recruit a small army of willing cyclists to take the chilled packages on the back of their bikes from a small regional refrigeration unit on the outskirts of town when an order came in via their mobile app.
Leading innovation like this is a great way to get industry attention. A press release and a few interviews later, Majestic was able to proclaim that they were expanding offering a unique service, superior to all other suppliers. By the time their competitors were even contemplating what was going on, Majestic was already on to their second innovation. Disposal of waste where they carried the cost of the disposal!
The design of an authority website is different from that of an attention or advocacy website. It is usually built around the unique value proposition. The technology featured on the home page was the 2-hour delivery 24/7 mobile app. The app allowed for ordering of key high-demand items and nothing else. It was a simple solution at first that became more feature rich as time went on.
Creating an authority play demands that the leadership talent is heavily involved. It can also consume a lot of marketing time but very little cash, in terms of resource used. Good innovations tend to travel quickly through social media and peer review publications.
Majestic has stuck with their processes of constant innovation and are now progressing their 3-year plan of authority, upending entrenched competitors by changing customer expectations. They are growing rapidly and are currently looking at powering their own factory from organic waste collected by cyclists and returning delivery vehicles.
Authority Summary
This is the hardest to execute although it brings a wealth of benefit. As we’ve seen in the previous chapter, authority businesses get a disproportionate amount of attention from those businesses that conduct attention and advocacy strategies. Their website needs a blog and relies on the distribution of stories regarding the innovations of the business. The true measure of the success of the innovation is how well the concept is received by customers and the industry media.
The real challenge for the marketer in this case is coming up with a constant stream of new stories of how the innovation changed peoples’ lives within the industry. Telling a human story can often seem like it’s not helping the business achieve its goals, but human stories travel much better than stories about advancing technology or work practices.
The leadership must remain involved and committed to creating cycles of continuous sustaining innovations if the marketing is to work and the business is to become an industry authority.
Once an authority position is achieved, the corporate ambition can shift to becoming the prime business within the defined lens lock. This is often achieved by simply innovating, innovating, and innovating again. At some point, the existing prime business will look to acquire the emerging authority, but if momentum favors the authority, they may eventually swallow the prime!