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Monitor Sowing Growth

Monitor Sowing Growth

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Published by: quizzy226 on Jun 20, 2008
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06/14/2009

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G
rowing a business seems next to impossible in tougheconomic times. Your customers aren’t buying as muchor as frequently as they used to, and the usual programsdon’t seem to work as well anymore. And that’s frustrating,because the benefits of growing your core business are clear.Nothing creates greater shareholder value or builds a more vibrant organization than generating higher and higher levels of growth in your principal business.But sowing growth in your own backyard is hard to do—really hard to do. Even talented and seasoned managers blessed withboom times have toiled with this problem year after year. They have broken their analytical picks trying to make sense of thecomplexities of their market, they have harvested all the low-hanging fruit, and even when they do spot promising newopportunities, their organization often rejects them in favor of business-as-usual programs. The reward for their hard work:frustration and tepid growth.And yet, even in really tough times, and perhaps especially in tough times, there lies a golden opportunity. Slowdownscompel managers to take a hard look at their organizations, tochallenge conventional wisdom, and to reconnect with theirmarkets (lest they fall further out of step with it). To make themost of the unfreezing of the way their company thinks andacts, they need a fertile, concrete approach to guide theirthinking. Actually finding golden opportunities doesn’t requireaccess to a silver bullet, just the discipline of employing thetried and true growth principles that deliver in good times andin bad. In fact, these principles consistently serve to doubleand triple growth rates. Throw out the fads and begin thehard work—a cornucopia lies in your own backyard.
Take a Closer Look
The first step is to look more carefully at the parts of your coremarket in which you have not traditionally participated. Youmay find the most attractive sources of growth in places where you haven’t looked before, or where you’ve looked but haven’tseen. Managers often fail to notice all the potential sources of growth in a business. No surprises here. Every company has itsreflexes, its biases. It looks at the sources of growth that haveworked in the past—say, poaching new customers from bigcompetitors—not necessarily at those holding the most promisefor the future—for instance, stimulating existing customers touse more of the product.For example, in the late 1980s, Fujitsu had an active busi-ness customizing its PCs for sales-force automation tasks atcompanies that sold big-ticket, information-intensive products.Salespeople at these firms would typically make two or threesales calls a day; then, at five o’clock, they’d enter the day’sactivity into their home PCs, using Fujitsu’s software.But this method made little sense for the salespeople whosupplied, say, snack foods to convenience stores and mightmake as many as 70 sales calls a day. They couldn’t possibly sitdown at a PC and write memos about each call. And in thelate-1980s many of them didn’t own PCs and were unaccus-tomed to using them. Fujitsu helped address the problem by building a portable, task-specific computer for Frito-Lay’s sales
SOWING GROWTH IN
YOUR OWN BACKYARD
Growing a business in tough times isn’t easy, but it can be done.
BUSINESSSTRATEGY
      J      O      U      R      N      A      L      O      F
January/February 2002Volume 23Number 1
 Reprinted from
Reprinted with permission. Copyright ©2002 EC Media Group
By Bob Lurie and Toby Thomas
The Magazine for the Corporate Strategist
 
force. Ultimately, this gave rise to a huge new product category:hand-held devices for sales and delivery workers, used routinely today by such companies as FedEx and UPS.
Break the Mold
Top managers need to undertake a careful, disciplined searchfor every opportunity to expand sales in the company’s core mar-ket. To lend structure to this task, we’ve divided all growthopportunities into five types. Running through this list one by one, and writing down as many growth opportunities as possibleof each type, can help you break out of tradition-constrainedthinking. The five types of growth opportunity are:
1.
Retaining uses by existing customers (reducing attrition isthe same as growth);
2.
Stimulating more uses by existing customers seeking tosatisfy the same basic needs as they have in the past;
3.
Generating new uses by existing customers seeking tosatisfy new needs or a different combination of needs;
4.
Stealing new customers from your competitors; and
5.
Bringing in customers who are totally new to the productcategory.To see how the categories work, consider the case of CobraGolf. In the early 1990s, Cobra doubled its sales in just three years, by recognizing huge growth opportunities in categories 3and 5—while other golf club manufacturers continued playing azero-sum game in category 4. First, Cobra’s managers observedthat many women were taking up golf, but Cobra’s competitorswere focused on their traditional market of young and middle-aged men. So Cobra redesigned its clubs to suit the needs of novice women and enjoyed considerable success. This was atype-5 growth opportunity.Around the same time, Cobra introduced an oversized clubwith a graphite shaft, which helped older golfers drive balls asfar as they had when they were younger. Customers who hadbought new clubs mainly when the old ones wore out suddenly started buying clubs to satisfy a new need: the need to continueplaying their old game after reaching a certain age. As a result,Cobra enjoyed sales growth of type 3. Whatever you do, when you look at categories 1 through 5,don’t limit your thinking to the growth opportunities that seemmost “realistic” based on past experience. The whole idea is totranscend your experience, so write down all growth opportuni-ties that occur to you.
Focus on a Specific Goal
 You will need to figure out how much effort (or, equivalently,money) it would take to realize each of these opportunities.Here, it’s important to focus on the specific customer behaviorsthat would have to change if each opportunity were to be real-ized—because no matter what, the problem always boils downto getting a particular customer segment to change its behaviorin a particular way.For instance, Listerine’s current ad campaign tells customersto “use Listerine for 30 seconds two times a day.” This is muchmore effective than just telling them to “use Listerine to havefresher breath and fight plaque,” because it identifies a desiredbehavior and tells customers why they should adopt this behavior.Similarly, if you are selling Internet connectivity to businesses,then trying to get your customer’s IT manager to give everyoneat his company Internet access is much better than lecturinghim in general terms about the benefits of T1 lines. Again, itaims for a particular type of behavior.A word of warning here: You may find that your company lacks the kind of data on customers and end-users that wouldenable you to figure out which of their behaviors will result inthe most growth. Either your data will not be sufficiently detailed, or you will have detailed data on customers and onend-users, but no way of matching the two up so that you cansee all the way down the distribution pipe.For example, say you’re a manager at Xerox, interested inimproving sales of your company’s premier optical characterrecognition software. You may see an opportunity to bundle your OCR software into fax/printer peripherals manufacturedby companies like HP. You may already have detailed data onHP—from previous interactions with that company. Butthat’s not enough. You must also collect detailed data on HP’scustomers, and on how each customer segment uses HP’sfax/printer bundle. If you can convince HP that some of itscustomers would be more likely to buy the HP peripheralif OCR software was a part of a bundle, then you can con- vince HP to change its behavior—by bundling your OCRsoftware with a particular line of products, by advertising theOCR feature, and by working to make it more compatiblewith HP machines.In short, you may have to identify a desired change in theend-user’s behavior if you hope to promote some other behav-ioral change in your direct customer. And you can’t do thisunless you know which end-user segments go with which directcustomers, and vice-versa.
Set Priorities
Let’s assume that you’ve managed to get detailed data on yourown market segments, and on the corresponding end-user seg-ments. Now you should be able to pair each growth opportunity on your list with one or more specific changes in behavior—changes in your customers’ behavior, and in some cases corre-sponding changes in their customers’ behavior.Against each of these behavioral changes you will find thatthere are barriers. These could be internal barriers within yourcompany, or they could be practical barriers in the outsideworld, such as existing customer preferences or the lack of adistribution channel to reach the desired customer segment.And, of course, overcoming each barrier will take effort and costa certain amount of money. Thus, one can assemble a cost/ben-efit analysis for each growth opportunity: (1) Here’s how muchgrowth I can expect, and (2) Here’s how much it will cost toremove the barriers that now stand in the way of the behaviorchange that will trigger that growth.
Organize your market research, yourcustomer profiles, and your growth strategiesaround segments that your company cansomehow act on.
 
 You can assign probabilities, take expectation values, con-struct decision trees, and so on. But ultimately, the goal is touse some sort of cost/benefit analysis to prioritize your list of growth opportunities. And if one or two on your list have a hugedemonstrable upside, you may find that your organization issuddenly willing to do what it takes to topple the barriers pre- venting you from realizing those opportunities.
Know Your Customers Inside and Out
Many companies, even if they do identify great growth opportu-nities, have a dreadful time trying to capture them. The problemhere is often the lack of a fine-grained understanding of cus-tomers—which is indispensable if one hopes to influence par-ticular customer behaviors. You can address this problem by crafting an in-depth pictureof the type of person who comprises a certain customer segment.The process starts with a description of that customer’s social,organizational, and physical environment. What constraints andopportunities set the context for this person’s behavior? Is she ina hurry? Is she at leisure? Is she with a family member? And soon. Next, we try to describe the desired experience that this cus-tomer associates with a particular product or service, bearing inmind that people really buy “bundles of experiences” more thanthey buy products. For instance, affluent teenage boys might visit Barnes & Noble not so much to purchase books as to beseen purchasing certain books—say, books by Albert Camus,Ayn Rand, and the like. And Barnes & Noble would want to beaware of this if these boys comprised a significant customer seg-ment. Finally, it is helpful to assemble a profile of the customer’sbeliefs—beliefs about himself, about the relevant product cate-gory, and even about particular products.These three factors—the customer’s environment, the sort of experience he is seeking, and his beliefs—combine to form aconcrete explanation of his behavior: Why he buys what hebuys, and why he does not buy what he does not buy.
Tell the Whole Story
The goal is to investigate your customer segments so thoroughly that you can truly “crawl inside the heads” of their constituentmembers. Managers at Barnes & Noble discussing “the seg-ment of affluent teenage boys” should all be able to envision the17-year-old budding intellectual as if he were sitting right acrossthe table from them. They should recognize this young man intheir friends’ kids, in their own kids—perhaps in themselves.They should know him not just in broad generalities, but in inti-mate detail. He spends weekday afternoons in a coffee shop(the local chain, not Starbucks). He supports environmentalcauses. He listens to Korn. He resents being under the thumbof his banal high-school teachers and fantasizes about the inde-pendence that will come with college admission. And whatabout his books? Well, they are not merely his “pastime,” they are his badge of alienation, of independence, of his status as anintellectual.If Barnes & Noble managers can see this customer, and thesegment he represents, at that level of detail, then they willknow how to market to him. For instance, they might want topromote CDs by college bands near the store’s philosophy sec-tion. And if you as a manager can picture this kid, then the peo-ple who run your marketing, sales, and operations will be able topicture him as well. Everyone at the company will be working inunison, because they’ll all have the same understanding of thesheepish, alienated, spoiled-rebellious teen who finds himself in your marketplace.So ask yourself: Can you tell this kind of story about yourcustomers? Can you relate to them, spot them at trade shows,guess what kind of bank they might use? If not, you may havetrouble inducing the sorts of behavioral changes you will need togenerate growth. Behavioral change is an intimate business. Itoccurs at the level of the human being, not at the level of “menbetween the ages of 27 and 35.”This lesson applies to those who sell to businesses, as surely as it applies to those who sell to consumers. Consider the gaspipeline business. Pipeline operators sell long- and short-termcontracts that give their customers the right to use their pipecapacity to transport gas from point A to point B. Simpleenough. You might imagine that this is a pure commodity busi-ness, in which the sale always goes to the pipeline operator withthe lowest price. Well, it can be that sort of business, but itdoesn’t have to be—not if you’re a pipeline operator who has anuanced understanding of his customer segments.For instance, think about the segment of “arbitrage mar-keters.” These professional traders buy, re-sell, and deliver gas totheir customers when they see a higher than normal priceimbalance in the market. If the price of gas in Eastern Ohio is20 basis points lower than it is in Upstate New York, an arbi-trage marketer knows, if he’s quick enough, he can makemoney. In a matter of minutes, he must find someone who willsell him the gas, persuade someone else to buy the gas, andthen contract with a third person to transport the gas. If he’s notquick enough, gas companies might adjust their price, or worsestill, a competitor will beat him to the punch. Arbitrage mar-keters need information about gas availability and pipelinecapacity and to talk to a decision maker at the pipeline company who can quickly say yes or no to a contract.Traditionally pipeline companies have regarded arbitragemarketers as nuisances and have been slow to respond to theirrequests, focusing instead on established relationships and long-term contracts with local distribution companies. A pipelineoperator who takes the time to understand the arbitrage mar-keter might behave differently. He would learn how much timearbitragers spend trying to find the market information they need to concoct the deal. He would learn that most of the arbi-trager’s requests come first thing in the morning, precisely whenthe pipeline operator typically holds his staff meetings. Hewould also realize that if you tell an arbitrage marketer “I have tocheck with our gas control people, we will let know later thisafternoon,” the arbitrager will hang up, hit the speed dial but-ton, and contact a competitor. He would also understand howmuch the arbitrage marketers resent the way most pipelinecompanies treat them.
No matter what, the problem always boils downto getting a particular customer segment tochange its behavior in a particular way.

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