In our second blog, we’re focusing on how to define the business problem or opportunity and where do we want to get to.
Following on from our previous blog, diagnosis is the first part of any strategic plan and the first step should always be a step back – taking stock of the situation. What ground will your battles be fought on, and which battles will you fight?
As with any general, your maps need to be in order. So, you’ll need the following information to see the lay of the land.
Your first focus will be on three main areas – your customers, your competitors and your company:
- Your Customers
What do they expect of you as a minimum? How far could you realistically stretch that expectation? And how far is too far? For instance, if you had a chain of premium fashion shops, your brand cachet might be sufficient for you to open a few budget clothes shops as a low-risk brand stretch, and even a home furnishings shop as a medium risk stretch, but your customer would not trust your expertise if you opened a whisky shop.
The following tools will help you:
- Customer segmentation
47% of British companies told the Institute of Direct Marketing they were unsure of their customer base and why they had bought from them. So, if you can get a good grip on this, it will immediately catapult you into the top 50% of marketers.
Many of you will have read Professor Byron Sharp’s book, “How Brands Grow” where he eschews targeting and extols the virtues of marketing to everyone, all the time. This is absolutely good advice if you have Coca Cola’s financial muscle and expect to get more than half your sales from people who only spend 50p a year with you, but not so achievable for more mortal brands. The rest of us need to segment and target the most likely buyer, which means a full and honest appraisal of your customer base:
Customer Analysis – the 3 Big Questions
There are 3 questions you simply have to be able to answer to win at marketing. You need to know your customers better than they know themselves. Those questions are Who? Why? How?
- Who is my ideal customer? Interrogate your loyal and lapsed customers.
- Why do they buy or not buy?
- How do they buy – what’s their journey? Try to understand the journey of a single customer to identify the pinch points.
Several sub-questions support each of the three big questions – for instance, what are the differences between loyal and lapsed, and how can you close the gap? Segment your customers by Recency, Frequency and Monetary value – When did they last buy, how often do they buy and how much do they spend? Take everything you know about the best customers and overlay it onto MOSAIC data (a consumer segmentation model) or similar to find more people like them. What did the better customers buy? Can you concentrate your efforts on that product? Can you identify turkey products that you can let go?
To what extent does the Pareto Principle (roughly 80% of consequences come from 20% of causes) apply to your brand? Does a large percentage of your sales come from a small proportion of your customers?
How much do you have of each customer’s Share of Wallet? If you know that a customer should be buying a sack of dog food every month and they’re only buying 8 a year, then you can see an opportunity to increase sales by 50% if you can understand why they’re buying elsewhere.
Calculate the Lifetime Customer Value of your best segment – this is the single most valuable (and most overlooked) figure in marketing, because it tells you
- What a good customer is worth (segmented by type, age, location or what they buy) vs other segments, and
- b) How much it’s worth spending to market to them.
It will also give you a solid target for your all-important brand tracking study – of which there’s more in the next article. This will tell you what your best customers think of you against certain key metrics and how you compare with your competitors in their minds. This will be the foundation of your strategy.
- Your Competitors
Draw a brand map of your competitors’ offerings and look for the clear spaces to find your “Where To Play” strategy. How will you compete? On price? Well, only one player in every market can be the cheapest, and everyone else has to rely on brand differentiation, so price is (counterintuitively, it might feel) the highest-risk area to be in. It also limits your resources to compete and grow. So perhaps consider competing on product differentiation, service or geography.
Competitor Analysis and the importance of identifying new competitors
The modern business world is a game without frontiers. Brands can now come from anywhere in the world to compete with you. Competitors from outside your category will move into your market. e.g. Sainsbury’s and Tesco now compete in the financial and phone sectors. Apple Watch sold more watches than the whole of the Swiss watch industry in 2018. Now that Netflix have reached near saturation point in the UK market (almost everyone has access to Netflix through either their own account or through family and friends), they say that their biggest competitor is ‘sleep’. And that’s before you get to disruptive start-ups blowing holes in your market.
There are now many new, (and often free) tools to analyse competitors. Our advisors can help you with these.
To compete, you need to know what your competitive advantage is, so that you play to your strengths. You also need to know your competitor’s strengths.
- Your company
What are you realistically able to deliver? Consider the skill set of your staff and directors, and the delivery capabilities of the company. What are your chances of building your reputation and customer base in these areas?
To help you, you’ll need to do a:
- Gap Analysis – what’s the difference between where we want to be, and where we are now. What possible causes might explain the gap? What could you implement to get you there?
Explore several different possibilities of Where To Play (WTP) and How To Win (HTW). Then for each one consider what you would need to do to make them work. Do you need to hire new skills? Improve your manufacturing base or delivery chain? Or do you need to change your customers’ perceptions through marketing? This gives you a focused, straight-to-the-point analysis upon which you can build solid objectives, upon which you can build a sound strategy, from which you can hang firm tactics, which will take you to where you want to be.
Armed with all these maps you’ll need to set objectives. These need to be SMART objectives – SMART stands for:
- Achievable (we like to use ‘Awesome’ instead, they should fill you with excitement and inspiration, otherwise you won’t see it through!)
If any one of those elements is missing, you’re setting yourself up for failure. A typical SMART objective is “Increase sales of camping equipment to family customers by 10% by April 2022”.
Also, focus on just one or two objectives –don’t go into a financial year trying to meet seven or eight strategic objectives. Strategy is about making choices. Now is the time to make them.
Of course, some of your objectives will be short-term – aimed at a specific segment and producing a specific financial outcome, and they’ll change frequently as you achieve them. Others will target all the consumers in the category with brand-based objectives, will be measured in your brand tracking each year and might remain part of your strategy for many years. You might want to set short-term objectives for sales, share of wallet or customer retention, and long-term objectives for awareness.
BUILD A SALES FUNNEL
Once you know whom you’re targeting and what you want to achieve, you need a clear handle on what sales targets will get you there. Obviously, you’ll change the figures to suit your company, but a typical sales funnel might look like this.
So, first you need to check your web analytics (using Google Analytics or similar) to find your conversion rates (listed on the left-hand-side). This allows you to set sensible objectives for the number of visitors (in this example, 1,600 visitors/month), and your conversion rates then give you the number of prospects (160 pm), hot prospects (40 pm) and number of customers – 10 p.m. or 120 p.a. @£10k average sale that would give you a £1.2m sales objective for the year.
This is where you’re beginning to get a clear idea of what your marketing needs to do to drive your business goals. If you know you need to turn over an extra £12 million this year, you can see clearly that this means you need to attract 16,000 new prospects per month. At your known conversion rate, this gives you the absolute clarity you need to:
SET A REALISTIC BUDGET TO ACHIEVE YOUR GOALS
Several methods are used to determine marketing budgets, including Percentage of Sales (self-explanatory), Zero-Based (where the cost of each project is separately justified and builds up to a justified total) and Match Your Competitor – however these all have their limitations and we’d recommend taking a different approach.
If you consider that Marketing (along with Sales) is the only function that deals with revenue (all the others deal with costs, in one form or another) then any marketing budget that isn’t set at the level that delivers your revenue target makes marketing into a self-fulfilling cost.
This is why you started this process ten weeks before the CFO started on their budget forecasts – because now you have a realistic and justified budget proposal, pegged against the return on investment, that you can present to put marketing at the front of the queue. If your plan can deliver, all the other departments can get what they need too. The marketing director shapeshifts from the light-entertainment fill-in at the end of the board meeting to the lead player, stepping into the spotlight.
So now you know where you need to get to, what obstacles are in your way and what it’s going to cost. In the next article, we’ll look at how to get there – The Strategy.
How Hallidays can support you
If you’d like to discuss any of the content covered in this blog, please get in touch with our business advisers by calling 0161 476 8276 or email firstname.lastname@example.org.