The publication of my first book, “Intended Consequences” has opened many doors for me.  The book is a manifesto on strategic planning and explains in some detail “how to” go about the formation of strategy. In effect, I gave away all my secrets for a mere $17.95, and our business is thriving.

I often hear objections from clients that they fear that their strategy could fall into the hands of competitors. They become tight lipped about their intentions, even with their own employees. 

I remember fondly the Lakers of the 1980’s. Magic Johnson would dribble the ball down the court, and throw a high pass to Kareem Abdul-Jabbar on the right block, and he would take a hook shot, time after time. The opponents, their coaches, the radio commentators, and the fans all knew it was coming, yet no one could stop it.

Extraordinary companies exhibit superior execution. The irony is that those organizations who take the time to explain their objectives in detail to employees and vendors are the ones most likely to achieve superior results. Being clandestine about a strategy can limit its effectiveness.

Competitors eventually figure out what others are doing, but they may or may not have the talent, cost structure, technology or acumen to emulate it, or execute with the same level of quality or rigor. On balance, customers want information, and providing detailed information in the form of white papers, marketing materials or specifications in an easily digestible format provides value. In most cases the incremental value created by giving away information to customers outweighs the risks.

I am not for a minute advocating that you publish your strategic plan. I am suggesting that the more people on your team who are committed to it and accountable for your initiatives the greater the likelihood you will realize your objectives. It wouldn’t hurt to have a Magic Johnson dishing it out to your team.

Yelp just scares the crap out of me.  For those of you who are unfamiliar, Yelp is a service where you can rate anything from the local bicycle shop to your CPA.  From Zagat to Trip Advisor, satisfaction ratings on the internet are in vogue. On eBay, potential buyers have three criteria, item, price, and supplier rating.

Imagine the ramifications.  How long will it be before your product or service is rated on the Internet by consumers or professional buyers?  The trend speaks to a need to get ahead of the curve and acquire real time, unfiltered feedback from customers.

All clients tell me they listen to their customers but their approach varies dramatically. Many are reliant on salespeople to do the listening for them. During the downturn and a period of massive discounting, many salespeople have become more tactical and often lack the consultative selling skills required to diagnose and synthesize customer problems.  Having the salesperson as the sole lifeline to the customer is like having the fox in the hen house; it is not as if many salespeople will self report eroding customer relationships when they may be the cause or at least a contributor.

While much has been written about customer satisfaction, many of the most common approaches are impractical for the small and mid-market business.  Electronic surveys are impersonal and yield poor results.  Snail mail surveys (sometimes with a spif or prize) get poor response rates and feel so 90’s.

We often complete client satisfaction and perception audits for clients as a pre-curser for strategic planning.  By far, live phone surveys are the most effective method, as they provide instant, unfiltered feedback and the ability to ask follow-up questions that garner more specific commentary.

While live surveys are more expensive than the other types of survey tools, client satisfaction seems like an endeavor worthy of investment.  Ultimately, the real value of such surveys is the problems you discover and the responses to open ended questions which can be the source of innovation. We never advocate an “annual” survey because you could wait up to a year to uncover customer issues.

Of course client satisfaction is not the end game. It is customer loyalty that is nirvana and is much more difficult to measure. The book “The Ultimate Question” points out that there is one question that is the best predictor of loyalty and ultimately profitability. The question is “how likely are you to refer a friend or colleague” as referring a product or service meets a higher standard than just being satisfied with it.

Like many things, survey tools may be imperfect but querying customers on their attitudes about your company is always better than no feedback at all. “Hey, hey, hey, that’s what I say!”

I am often asked if organizations should include Facebook postings and other social media in their marketing plan. For those of you interested in a precise answer, here it goes: it depends.

Newspaper revenue has fallen off a cliff (down 40% by 2003) while magazines have not fared much better (down 20%). Television ad revenue is down 15%, this year alone.  Meanwhile, online media is growing at a 7% clip suggesting that as a whole, total spending on marketing is undergoing a precipitous drop.

According to Kiplinger, targeted campaigns will reap 75% of all marketing spending by 2013. Marketers, armed with the ability to regurgitate millions of data points such as age, gender, location, income and household size will find ways to market online to very specific audiences.

In these cases, social media will provide an inexpensive method for targeting specific customers.  In the interim, most of us are just spewing on social networking sites with little return. There is certainly room for consumables to be marketed through social media. A recent study published in the Harvard Business Review showed a significant lift in the popularity of certain products and services when Facebook  and Twitter are used to mold the consumers’ opinions, including the use of online coupons and the like.

Yet for now, it is hard to imagine a professional services firm (for example) using such sites for anything more than impressing their younger colleagues. LinkedIn is by far the most useful site for professional networking, yet few people take the time to mine their database beyond their existing relationships (which seems redundant and far from the point).

My conclusion is that if your primary audience is B2B, the focus of internet marketing should be search engine optimization, blogs, and LinkedIn. I have many of my B2B contacts on Facebook, but it is a slippery slope (some have even verbalized their preference not to have any business interactions on Facebook). It can be hard to mix business with pleasure, and Facebook certainly presents the opportunity for the horse to get out of the yard.

Combinations of internet marketing activities can be very powerful, such as linking Facebook, Twitter and LinkedIn posts to your blog. Some have gone as far as outsourcing to marketing professionals that do nothing more than ghost for a business on the internet.

I may be old school in this regard, but I think for most of us that money would be better spent trying to orchestrate meetings with people our own age who will be more impressed with what we have to say in person than how clever my Tweet is this week.

You may have fantasized about visiting exotic places such as Portugal, Spain, or Greece, but you may not want to plant any money there anytime soon.  All it took was tiny Greece to signal a potential default on its debt to send the U.S. markets spiraling like something out of a Greek tragedy.  With its deficit ballooning to 13% of GNP, Greece is one of many European countries saddled with debt.  With lower reserve limits, European banks carry more risk at times when liquidity is low.  European banks represent merely a microcosm of a bigger problem; the outliers, the seemingly trivial and unpredictable events, can trigger a global panic.

Volatility is not a recent trend. Over the course of a decade, we have experienced Y2K, 9/11, Katrina, Enron/WorldCom, the Asian Financial crisis, mad cow, the tsunami, the bird flu (H1N1), and influenza strains that have not yet been named. Volatility has become the norm.

In this age of uncertainty, entrepreneurs must have a greater level of preparedness because there are more variables to prepare for. We must be prepared for the things that we control and even the things that we cannot.

Such volatility requires a different mindset, where infrastructure is more flexible.  Depending on the nature of one’s business, we need to have more flexible labor structures, less inventory, and the ability to be nimble.  Perhaps more importantly, we must be ready to change like a chameleon, on a moment’s notice.

In October of 2007, DuPont’s CEO, Chad Holliday, visited a customer in Japan who reported a sudden squeeze on cash flow. Upon his return to the U.S., Holliday heard that U.S. automakers (who order paint from DuPont only 48 hours before applying it to new vehicles) were dramatically curbing orders.

Holliday took swift action. The following morning, Holliday deployed the company’s crisis management plan and put 17 teams in charge of curbing production. Within 10 days, every manager in the company had met with their employees to “re-clarify expectations.”

If a company of DuPont’s size can change on a dime, so can mid-market companies.  The volatile market place requires that we prepare cautiously, move quickly, and act decisively.

Amidst the scandal and meltdown in the financial sector, many have been waiting for a taxing regulatory response.  One was not forthcoming until last month, as the House approved the most significant expansion of Federal regulations since the Great Depression.  In an effort to avoid a repeat of the liquidity crisis, the bill includes leverage limits and the ability for regulators to break up large banks.

But the more ominous government action will take place in 2010, as the Obama administration is positioning for significant tax increases which will dramatically impact small businesses.  The Treasury’s recommendations to enhance “revenue” include:

* Tax cuts for families and individual in the form of more aggressive MWP (Making Work Pay) credits,  Earned Income Tax Credits (EITC) and Child Tax Credits.

* Reinstatement of the 39.6 tax rate, 36% for couples over $250,000 in income, and elimination of deductions for certain taxpayers in this tax bracket.

* Imposition of  a 20% rate on dividends and capital gains (at incomes above $250k)

* Changes in 401K rules that will encourage retirement savings for lower wage earners

* Elimination of Capital Gains taxation on investments in small business stock (primarily in manufacturing).

* Making the Research and Experimentation (R&E) credit permanent.

*Expansion of the Net Operating Loss Carryback.

The most dramatic of these changes is the 13% tax increase in the marginal tax rate for the wealthy.  In a remarkable irony, the 35% rate (due to sunset in 2010) was part of the Jobs and Growth Tax Relief Reconciliation Act of 2003. Now that some in Congress believe that jobs and growth are seemingly not as important, the proposed rate will escalate to 36.6% for high income earners should the legislation pass.

The news is not all bad for the manufacturing sector as new tax laws may include the elimination of capital gains taxes for non-service businesses. To qualify, stock must be issued in 2009 or later and be held for 5 years. Tax savvy manufacturing entrepreneurs should seek counsel from their tax professional (that would not be us) and watch as these tax rules unfold in the months to come.

As many view the holiday season as a glimmer of hope, I was struck by several news items this week:

 Apple vs. Google

The battle for Silicon Valley supremacy has heated up in the last few weeks as the two behemoths vied for two start-ups:  La La Media (bought by Apple) and Ad-Mob (purchased by Google in November).  As technology often drives M&A activity, these deals may be a spark for a wave of acquisitions, as investors who have been sitting on the sideline may re-enter the fray.  The release of operating systems from Microsoft have often been the trigger for waves of technology spending, and it will be interesting to see how the sector fares this year.

Retail Discounting

I was struck by an offer by a local golf course this week. It read “What Rain, Play all Day on Friday for $39”. It used to be that marketers offered discounts when demand was low. Now, everyone from carpet cleaners to retailers are trying to drive demand to offset over-capacity or excess inventory. Such a combination creates a double whammy, where high costs are only exacerbated by diluted margins. It appears as if our worst fears for the retail sector are coming to fruition.  A shocking 95% of Americans say they are holding off purchases to take advantage of last minute sales.

 The uber discounting in the retailer sector is truly horrific. Retailers used to make all their margin in the fourth quarter, but they are sabotaging any enterprise value by giving away the store.  If you feel compelled to start a price war in your business, do it at a time when you want to introduce new customers to your product or services, not when they are going to buy from you anyway.

Boeing Tests 787

 The aerospace sector has also been crushed by high oil prices, the recession and the delay of new products.  Yet this week Boeing’s 787 airliner will make its inaugural flight and begin a year of field testing. The 787 is Boeings’ response to the European Airbus A350, a generation of planes built using up to 50% composite materials.   

United Airlines ordered twenty five 787’s and twenty five A350’s, suggesting that airlines may be ramping up capacity, especially in more profitable long range routes.   With the exception of military suppliers, the American aerospace industry has been in a deep freeze and is eagerly awaiting a rebound.

It appears that some sectors of the economy are starting to improve while others remain stagnant.

With the fervor over health care reform, many have been consumed with the debate over the “public option” and how we will pay for it.  With all the banter about who should be covered, there has been little discussion about how medical science and technology will converge to change the rules of engagement for the medical community.

There are fundamental flaws in the way our system is constructed:

A)     The people who most need medical insurance (like the uneducated and poor) cannot afford it

B)      The system is highly reactive, based on treating the sick instead of preventing disease.

C)      Without market forces at work, people are less apt to take responsibility for their own health.

The Federal government has already allocated $19 Billion in funding for the creation of electronic medical records (which could cost $30 Billion by some estimates). Electronic record keeping when combined with new nano-technologies will allow medical science, doctors and insurers to predict specific ailments based on a multitude of factors. Your health care provider could mine data to know how many steps you took at the gym in a given day, your  prescription history, and preference for Jamba Juice into an algorithm that could better predict your likelihood of heart disease or cancer . The potential for abuse is alarming. Yet, the emergence of such capabilities mark the true innovations that could result from reform, and the real opportunity to lower costs and improve the effectiveness of health care for American families.

If we really want health care reform to meet its potential, we will need to see past our fears about privacy and embrace predictive modeling.  Those of us who make good choices about our health should gravitate towards solutions that will allocate costs based on risk factors.  I should not be granted the privilege of superior care at a reasonable cost because of socio-economic status, but because I choose not to smoke or regularly frequent Burger King.

Much like the recent melt down in the financial sector, when risk is not distributed thoughtfully within an industry, the total costs escalate.  If the Federal government  (i.e. the tax payer) is going to foot the tab for national health care, we can only expect that we find a better method for distributing the risks and the costs.

Many of my older colleagues are feeling a bit out of sorts with Facebook, RSS feeds and the plethora of online media which have disturbed the sanctity of our desktops. Many feel compelled to join the party, regardless of their place within the world order. 

I wonder if all of this panic is really necessary.  For some, running Facebook ads seems trendy, but for others it is like selling Yankee pinstripes at Fenway Park. My point is that if you have an old world product, it is hard to convert to online marketing techniques overnight.

Peter Drucker said all management is marketing but I wonder if he is turning in his grave at the prospect of Twitter and its lack of a sustainable revenue model.  He couldn’t have expected marketing to change so dramatically, practically overnight.  Print advertising is dying a rapid death.  Yet some products and service have an experiential component that make Internet marketing difficult.  Companies are spending a lot of money on ad words and other SEO (search engine optimization) tools, sometimes void of any real strategy or measurement other than click through (which is a ridiculous measurement if I ever heard of one).

Companies are well advised to consider their Internet strategy within a broader effort that blends different approaches into an integrated marketing plan.  Marketers must take the time to acquire the skills, resources and technology to compete effectively in the online space. 

One advantage that online marketing offers us is the ability to measure specific outcomes of web traffic, and we should all be a bit more vigilant in measuring the effectiveness of our marketing so that we can better allocate resources to the approaches that work best.  See you all on Facebook.

I hear it from everybody, from the accountants to the architects, the world is simply much more competitive than it used to be. 

No industry has faced more brutal price competition than construction. In an environment where differentiation is hard to come by, The Concrete Network stands alone.

Concretenetwork.com is positioned on the Internet as the go to site for information on, well…concrete. The site provides everything from training on how to mix concrete to a database on how to find contractors.  They even have sponsors for their website. If an organization has the initiative and entrepreneurial spirit to be subject matter experts in an industry as basic as concrete, imagine what is possible for the attorneys, insurance agents, and manufacturers. It just takes some imagination.

I have spent the last year writing a book, blogging, writing articles and creating video testimonials to make my point.  If you don’t value your services, no one else will.  Creating a differentiated offer takes time, money, energy and resources, but mostly it takes will….the will to compete, the will to charge the hill and take on the competition. The easy thing to do is to whine that competitors are undercutting your prices and sabotaging the market. Of course, they do that because they are bit players in your production, but you have the ability to take them down.

Regardless of your offering, if you want to maintain price continuity and profit, one must find a way to add value whether it be through education, additional services, technology, support, etc.   You may need to experiment to find the right formula, but in the end, customers expect to pay more to vendors who offer more services and pay less to the lackeys who offer less.

Do you have the will to compete with the business that is replacing you?

Part 2 of a two-part post on pricing strategy

Our last post spoke to the difficulty of sustaining competitive advantage as the low cost leader, a temptation for many in this sluggish economy.   Globalization has opened the market to big box retailers and up starts that can create a virtual offer overnight. Discounting is rampant in almost every industry, and the sluggish economy has reinforced  the  trend towards consumer thrift and a “treasuring hunting” mentality.

Consumers are trading down on some goods so that they can trade up on the luxury goods that they desire. Go into any suburban Walmart, and you will see a representation of Mercedes Benz in the parking lot. Upon boarding a Southwest Airlines flight, the business man in the next seat is apt to be sporting a Rolex watch.  The consumer (as well as the professional buyer) will vary their purchase triggers (quality, service and price), based on the use of the product they are acquiring. Customers find middle priced offers confusing because they are not sure if the product or service stands for quality and service (which they perceive as higher priced) or for value.

Now that the bar has been lowered on many goods and services, it will be hard to raise it again. Consider the plight of U.S restaurant chains.  Earlier this year, Bennigan’s and Steak and Ale skipped Chapter 7 and went straight to liquidation, (because their business was so bad). At around that time, operating margins by  segment were as follows:

• White Table Cloth (Ruth Chris 6%, Morton’s 4%)
• Casual Specialty (Cheesecake Factory 6%, Olive Garden/Red Lobster 9%)
• Casual (Bennigans, Steak and Ale–Chapter 7, Ruby Tuesday’s 5%)
• Fast Casual (Panera 9%, Corner Bakery/Chili’s 6%)
• Fast (McDonald’s 27%,  KFC/Taco Bell/Pizza Hut 12%)

White table cloth restaurants, operating on high margins were able to introduce an occasional special and remain solvent during the downturn.  Themed restaurants such as Olive Garden and Cheesecake Factory eked out a small profit. McDonald’s with its massive scale and zeal for consistency was able to capitalize on its dollar menu and build market share (McDonald’s and Walmart were the only Dow components to increase in value in 2008). The companies in the middle such as TGIF, and Ruby Tuesday struggle because they lack any differentiation and only create marginal economies of scale.

If restaurants are not proof positive that the middle had eroded, consider the department store industry. While Nordstrom’s and Walmart continue to thrive, Montgomery Ward’s and Mervyn’s shuttered their stores. The merger of Sears and Kmart was like two guys who didn’t know how to swim, grabbing for each other in the deep end.  Only differentiated Target is able to price in the middle (Target is priced 5-10% higher than Walmart).

Clearly, the highly differentiated brand that commands higher price points supports higher margins and less risk.  Many are asking, how can a company preserve premium pricing in this economy? Any company can discount, but to cut prices on more lucrative goods only commoditizes a brand.

One approach is to create a separate offering. Ultra luxury brand Coach has developed the “Poppy” line of handbags sold at a lower price point. By marketing a secondary line, Coach can maintain its leadership as a premium brand, while providing the consumer a lower price alternative.  Others are creating Internet offers which different products, case packs and terms (cash).

Marketers must make short term profit decisions within the context of long term brand positioning.  Customers equate higher prices to higher quality and lower prices to…well, lower quality.  A strategic view of pricing dictates that the value of the brand be preserved so that companies can take advantage of the real profit, to be made during the upturn.  While one may feel compelled to cut prices to fend off competition, consider the attributes of the customer you are acquiring…..a price buyer who does not value brands or quality. If you are unable to play on any field but price, it is an indication that more investment is required in creating a differentiated offer and unique bundle of services.