Download document

Evolutionary Marketing
The Levitt Group
13 June 2009
Anthony Freeling
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
Agenda
1. The challenge for marketing
2. The potential of evolution: Vary Select, Copy loops (VSC)
3. The principles of Making VSC loops work
4. The continuing need for Big Leaps and how to execute them
5. Requirements of the Commercial Operating System
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
2
Agenda
1. The challenge for marketing
2. The potential of evolution: Vary Select, Copy loops (VSC)
3. The principles of Making VSC loops work
4. The continuing need for Big Leaps and how to execute them
5. Requirements of the Commercial Operating System
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
3
The dominant strategic marketing approach today is to
select a target and focus marketing efforts
Kotler describes the heart of modern strategic marketing
• Segmenting
• Targeting
• Product positioning
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
4
The problem
• Continuing disenchantment with the function of marketing
(despite some successes) on the part of
– Customers who feel short-changed or over charged
– Business leaders who have a low opinion of marketing
– The marketing community itself: “Marketing as a function is in
some danger of being marginalized” (Marketing Science Institute)
• Increasing demands from other stakeholders in the fitness
landscape
–
–
–
–
Regulators and governments
Shareholders
Employees
Communities
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
5
The Big Question
How must marketing
change to achieve its
promise?
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
6
A definition of strategic marketing
• Marketing is the process of creating and communicating winning
offers
– That are Adapted to an uncertain, competitive market
environment, thus attracting customer spend and translating
share into profit
– That Shape the environment by influencing customer
demand and out-manoeuvring competition
• Strategic marketing is simply the strategy of choosing where
and how to create and communicate these offers
– As opposed to tactical marketing which is how specific
elements of the offers are created or communicated
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
7
Potential conflicts in marketing
Key factors for success
Style of Marketer
Speed
INTUITION
Quick and Dirty?
•
•
Fitness
Slow and
expensive?
Efficiency
Run by
accountants?
•
Intuitive marketers can be
fit, fast, and efficient
But they often resist adding
rigour even when it would
improve fitness and
efficiency
Rigorous processes often
add fitness first time, but
are too slow and resource
intensive to repeat
RIGOUR
Is classic marketing always appropriate for today’s challenges?
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
8
Agenda
1. The challenge for marketing
2. The potential of evolution: Vary Select, Copy loops (VSC)
3. The principles of Making VSC loops work
4. The continuing need for Big Leaps and how to execute them
5. Requirements of the Commercial Operating System
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
9
Evolution can show us the way to creativity through better
adaptation
•
Evolution is a universal theory of adaptation which can apply to domains well
beyond the original biological domain studied by Darwin
•
Looking at marketing through the lens of evolution is to see it as a search in a
complex landscape for marketing offers that are more “fit” by adapting the offer
to the competitive and customer environment
•
The key to success in an evolutionary system is to be good at variation within
a population, selection of the fittest variants, and amplification of the
selected variants to ensure they increase their share of the population
•
In marketing terms, this suggests that the way to evolve most rapidly to
winning marketing offers is by being good at varying, selecting and copying
(successful trials)
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
10
The three core elements of evolution in any domain
• Interactors that do the living and dying over time (organisms in
biology, businesses in economics)
• Scarce resources and competition for those resources amongst
interactors
• Fitness landscape describing whether an interactor is suited to
survival in that environment that is "semi-chaotic", hard to
predict and which is itself shaped by the interactors that exist
– effectively how successful they will be in competition for
scarce resources
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
11
An adaptive fitness landscape
• Every interactor has a fitness value
• A new interactor affects the fitness of existing ones
• So a new interactor shapes the fitness landscape
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
12
Search on an adaptive fitness landscape
• Create a new variation
• Select it if it is more fit than the others
• Replicate the selected interactors
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
13
Vary, Select, Copy Loops
Copy
Select
Vary
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
14
Capital One - an example of fast VSC loops driven by
technology
•
Credit card monoline
•
Fast growing, excellent share price performance
•
Based on Information Based Strategy (IBS) which allowed them to “mass
customise the company’s products by building massive databases of consumer
information and by transforming our company into a scientific testing
laboratory…we can deliver the right product to the right customer at the right
time and at the right price”
•
Core idea to shape the marketplace by offering a tailored price to each customer
•
Between 1989 and 1991 conducted 200 tests before identifying first winner - low
introductory rate, balance transfer - a new offer
•
Later, ran tests varying message strategy, price, credit line, product features and
acquisition strategy for same credit scores to find which combination of marketing
activities led to best outcomes - combinations were often a surprise
•
Tests enabled them to successfully target new customer segments (e.g. subprime). Also could use tests to identify when to exit markets (winnowing) e.g.
balance transfers before competitors
•
By 2000 conducted tens of thousands tests a year
•
Strategy based upon outstanding analytical capabilities
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
15
Tesco is an evolutionary marketer that creates value for
customers through rapid adaptation
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
16
Agenda
1. The challenge for marketing
2. The potential of evolution: Vary Select, Copy loops (VSC)
3. The principles of Making VSC loops work
4. The continuing need for Big Leaps and how to execute them
5. Requirements of the Commercial Operating System
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
17
Making VSC Loops Work - Principles
1. Avoid Analysis-Paralysis through better intuition
2. Experiment smartly to reduce the cost and time of creating
variants
3. Achieve fitness through sharper selection
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
18
Klein and Intuition
• Experts do not follow rational choice models
• In fact they rarely compare options
• Instead they recognize patterns that activate “action scripts”
• They use their expertise in the form of mental models to
simulate how the action script would work
• If all seems OK, they act, else they try another action script
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
19
Barriers to developing intuition in marketing
• Separation of marketing tactics and strategy prevents experts
developing experience in the overall marketing task
• Marketing managers do not stay long enough in the same job to
develop deep expertise
• Change leads to discounting the experience of seasoned
marketers
• Marketing processes are systematized reducing the opportunity
for people to make regular judgment calls and gain maningful
experience
• Performing against simple metrics to achieve bonuses replaces
the original marketing goal
• IT leads to training focusing on using the system rather than
making proactive decisions
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
20
Improving VSC loops - Situation Awareness
• Situation Awareness (SA) is being aware of what is happening around you
and what that information means to you now and in the future.
• Breaks down into three separate levels
– Perception of the elements in the environment
– Comprehension of the current situation
– Projection of the future status
• Depends on mental models of how things work to go from perception to
comprehension and projection, which is key to speeding up VSC loops
• Also defines what cues you will look for in the environment
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
21
Smart Experimentation - Reducing the Cost and Time
• Pilots and Prototypes
–
–
–
–
Shops
CRM
Geography (regions or countries)
Quick prototypes
• New technologies
– Computer models and simulations: Car crash for $300
– High throughput testing: Drugs, CRM, statistical price experiments
– Monte Carol simulations
• Loyalty Cards
– Tesco and the banana man
– Harrah’s and the free steak dinner
• Digital Marketing
– Google AdWords
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
22
Fitness through Sharper Selection
• The challenge: how do you know your marketing is fit?
– Advertising has shown how hard it is
• Research the right Marketing Metrics
– Behaviour not attitudes or statements: 95% claim to wash hands,
63% do)
• Statistical experimental design vs Thoughtful tinkering
– Yield management can be designed
– New products require thought and intuition
• “The availability of experiments has trumped the asking of good
questions” - Steven Levitt, author of Freakonomics
• Quantitative research
– Fast turnaround: Omnibus surveys, Web panels, Conjoint,
SurveyMonkey
• Qualitative research
– Less Focus Groups
– More ethnography
• Econometrics
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
23
Improving VSC loops - case examples
Improvements
Examples
Vary
•
•
•
•
•
•
Experiment cheaply
“Co-creation” with customers
Spare capacity for testing
Computer simulation
Intuition to guide action
Executional agility
•
•
•
•
•
•
Nokia, Capital One
SAP, Linux
Google
BMW, Pfizer
Tesco
Zara
Select
•
•
•
•
•
Maintain situational awareness
On-line concept screening
Develop rules of thumb
Use data to balance intuition in testing
Use regular cross functional meetings
•
•
•
•
•
P&G
Nokia
United Biscuits
Tesco
Tesco
Copy
• Invest in infrastructure to scale rapidly
• Discipline to drop failures
• Integration between marketing and other
functions
• Outstanding executional capabilities
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
24
• Google
• Capital One
• Oracle, Boeing
• Tesco, P&G
Seven ways to speed up marketing VSC loops
• Immersion in the customer experience
• Know your landscape
• Develop rules of thumb
• Use pilots and Prototypes
• Conduct smart experiments
• Use quantitative research and econometrics to sharpen
selection
• Use qualitative research to improve intuition
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
25
Agenda
1. The challenge for marketing
2. The potential of evolution: Vary Select, Copy loops (VSC)
3. The principles of Making VSC loops work
4. The continuing need for Big Leaps and how to execute them
5. Requirements of the Commercial Operating System
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
26
The Limitations of Fast Loop Marketing
Fast Loop marketing many not be the right approach:
• When you wish to shape the marketplace through a major
innovation
• When it can no longer adapt fast enough
• When marketing experiments are too expensive or too slow
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
27
VSC loops stop working
• You may miss major opportunities - problem of local optimum at B
• The environment may have changed leaving you a dinosaur - General
Motors, Luxury goods?
• A market leader is blocking your way
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
28
Choosing between VSC and Big Leaps
VSC
• Tesco
• Capital One
• Kodak
Healthcare
(solution)
Procter &
Gamble
Big Leap
• Experiments slow or expensive
• Need to shape landscape fast
• Able to identify where demand lies
• Landscape has changed a lot
• Lost Situation Awareness
• Experiments cheap and quick
• Adapting the prime goal
• Demand uncertain
• Landscape is familiar
• Good Situation Awareness
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
• Boeing (new
plane)
• Pfizer
(blockbusters)
• Kodak
Healthcare
(machine)
30
P&G demonstrates the combination of occasional big leaps
with ongoing adaptation
•
Different, slower moving consumer landscape than Tesco (as there is slower
pace of innovation and competitors do not move so fast)
•
Nevertheless, still clearly very hard to predict success in advance - something
like 80-90% of packaged goods innovations fail
•
Primary measure of success is the same - share of customer spend in their
market
•
We see that P&G invests far more resources in larger scale product innovation
than Tesco - and is far more successful in these launches than most of their
competitors
•
Leading the way in Open Innovation - e.g. Swiffer Dusters, Crest SpinBrush,
Olay SK-II Regenerist, Mr. Clean Magic Eraser, Glad Press’n Seal
•
Part of this success is continual adaptation of innovations over time, for
example internationally
•
P&G is also highly innovative in marketing tactics - from advertising to soap
operas to web marketing to buzz marketing
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
31
ADAM - the rigorous approach to Big Leaps
Analyse
•
•
•
•
•
Consumer trends
Customer segments
Competitor position
Brand positioning
Market opportunities
Analyse
•
•
•
•
•
Product attributes
Marketing strategy
4P’s
Brand plan
Go to Market approach
•
•
•
•
Execute marketing tactics
Launch new product
Manage cross-functionally
Conduct CRM programmes
•
•
•
•
Ad hoc Market research
Tracking research
Sales results
Market share
Analyse
Decide
Act
Measure
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
32
Agenda
1. The challenge for marketing
2. The potential of evolution: Vary Select, Copy loops (VSC)
3. The principles of Making VSC loops work
4. The continuing need for Big Leaps and how to execute them
5. Requirements of the Commercial Operating System
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
33
Tesco’s fast VSC loops are implemented through a strong,
well adapted Commercial Operating System to provide
rapid adaptation to customers
• Integration throughout the value chain, from store to head office
– TWIST “Tesco week in store together”
– Process simplicity
• Clubcard
– Knowledge is well disseminated from the store
– Everyone shares a common Situation Awareness.
• Apprenticeship culture
– Individual employees have the capabilities to operate
– Every little helps
– People at all levels can innovate “try it and see”.
• Performance management system
– Balanced Scorecard (The Tesco “steering wheel”)
– Combining customer, operations, people and finance measures
Rapid adaptation to customer behaviour
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
34
A Commercial Operating System (how companies manage
themselves to conduct their marketing and sales
operations) has four elements
Processes, structure and Interactions
• Core marketing and sales processes
• Clear responsibilities
• Calendar and rhythm of the year
• Interactions across organisation structure
Framework and tools
• Methodologies
• Templates
• Decision Tools
Talent and Skills in Pivotal Roles
• Right people
• Training
• Apprenticeship
Metrics and Performance Management
• Measurement (Balanced Scorecard)
• Incentives
• Accountability
Source: McKinsey
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
35
Good Strategic marketing - Summary
•
Use fast Vary, Select and Copy loops to improve fitness, speed and efficiency
– Lots of tests
– Maintain situational awareness by
• Valuing immersion in the marketplace
• Developing intuition and rules of thumb through experience
• Using data to balance intuition
– Develop executional capacity to copy by
• Investing in infrastructure to scale rapidly
• Integrating marketing with other functions
•
Use Big Leaps only when appropriate - but recognise that sometimes it is
– Adopt the rigour of ADAM unless you have the insight of Jobs
– Always follow a Big Leap with VSC loops
– Challenge frequently to check if risk/return of Big Leap has been wrongly estimated
•
Develop a Commercial Operating System to support this by
– Installing a few simple processes with supporting tools
– Structuring marketing around integrators and specialists
– Adopting the apprenticeship model to build skills and intuition
– Measuring and rewarding staff on customer behaviour more than attitudes
Ashridge Strategic Management Centre
Copyright A. Freeling 2009
36