Knowledge Is Power

So What IS the New Normal?

Conspicuous consumption is out—the new normal is frugality

Living beyond your means is out—the new normal is savings

High fashion stores are out—the new normal is second hand outlets

Airlines are cutting the number of first class seats—the new normal is business class

A new normal for many industries is a constant refrain. But I have a question: was there really an old normal; in the sense of a very stable pattern of behavior that a business could confidently use in its plans? Well, yes, some behavior patterns were predictable, but these were stable because the economy was relatively stable. Speculative bubbles followed by spectacular crashes have been occurring for hundreds of years—any one out there want to buy a tulip bulb?

So the questions now are how stable are these patterns of behavior over what period of time, and how do we stay ahead of, or least track, the changes? Both my parents were relatively lucky during the Depression as their fathers had jobs and could feed them although all extras such as new clothing were eliminated. But even so, the Depression did influence their spending behavior for the rest of their lives. The current downturn has been called the Great Recession; is/was it great enough permanently alter behavior? Probably yes, but conspicuous consumption and speculative bubbles will return—they always do eventually.

So you not only have to figure out the new normal and be sure that you have a process to keep track of the changes in the new normal.

The organization that figures out the new normal before rivals do gains a significant competitive edge. You have to carefully monitor your customers’ thinking and adjust your value proposition to reflect the current normal for your target market. Otherwise, one of your competitors will discern the new normal before you do and steal your customers.

How can you do this monitoring? Good question. You have to use all the market research tools that you can to track the changes. If you have not already set up a communications vehicle with customers to receive their feedback, do so. Examine your customer base to identify the early trend setters or early adopters and keep careful tabs on their thinking and behavior. Work with other departments within your organization, including, but not limited to, market research, marketing, sales, and purchasing, to be sure to be on top of these changes.

And do not lesson your focus on your rivals to anticipate how they are reacting to the new normal. The combination of market research and competitive intelligence is essential in this situation—as it is in many others.

Planning for Long Term Competitiveness

Is your organization seeking long term opportunities that will insure a strong competitive position in the future? And does it have the mindset to succeed?

Alison Sander, Director, Center for Sensing and Mining the Future, The Boston Consulting Group presented to HBS alumni on “Global Megatrends: Seeking the Next Billion Dollar Opportunities”

The Center for Sensing and Mining the Future tracks long term trends and works with clients to applying the implications of selected trends on their businesses.

At the June meeting, she discussed the three key issues in long term planning:

1. Thinking about the patterns of the future is a whole discipline in itself
2. Leveraging knowledge into opportunities
3. The mindset challenge is the greatest one of the three; enormous risk vs. enormous opportunities viewpoints conflict

When thinking about the future, distinguish between “dice rolls” such as very specific stock prices by a certain date. More predictable are demographic shifts.

Trends come in different shapes: 1. Linear – this type is increasingly rare 2. Cyclical – the only significant question is where are you in the cycle? 3. Exponential curves

Exponential curves are hard to spot in early years, but obvious once they take off. Organizations that recognize exponential trends early gain competitive advantage, but fast recognition is not the only time that money can be made; several points allow opportunities. For example, at the end of a trend, the stock of lagging firms can be shorted.

She discussed several trends as examples of the work that her firm does.

Her firm has found new stages of aging and new views of existing stages. Instead of a traditional pattern; young—work—retirement, boomers have added a second career between work and retirement. Younger people anticipate even more stages such as young adult. The former “grey” market, or people over age 50, is now called the silver market. Nursing homes are an obvious opportunity, but the over 50 crowd travels frequently, buys tons of toys, etc.

Think technology and how technology changes how businesses operate. The total number of bits shipped keeps marching on so expect disintermediation in traditional business models from face-to-face or phone to online. The travel business was the first to reach over 50% online. Think about inflection points when the world changes. For example, in 1950, 29% of the world’s population lived in an urban area. In 2000, 60% did.

The list of the world’s megacities in 2010 will be very different from the 1980 list. The 1980 list contained relatively more entries from the US and Europe. The 2010 list leans towards Asian metropolitan areas which have been growing rapidly and need massive investment in infrastructure development such as water, waste, or transportation.

Unfortunately, knowledge of a trend does not equal action for many organizations. For example, there is a very high awareness of aging, but very few companies have plans to profit from this demographic change.

The mindset challenge is the greatest challenge. Will a company duck the future or be excited about the opportunities?

Four ways people respond to uncertainty:

1. Ostrich; ignore and deny
2. Control
3. Forecast and predict
4. Anticipate and respond with agility

The characteristics of successful companies are the possession of foresight, the ability to leverage their resources, curiosity which leads to new opportunities, and agility, or the ability to create flexible options. There are few examples of agile organizations; two are Apple and Amazon.

Many executives are afraid to make changes because they do not have enough information, but they need to act in order to get more information. More companies are realizing that a one year timeframe for planning is not enough.

Often, people will spot more trends in their personal lives than their business lives. Notice what is changing in your personal life and ask yourself if it will affect your organization and if so, how. Expand the time horizon for CI in your firm, thereby expanding your value-add.

Why Are a Few Real Estate Agents Prospering in this Terrible Market?

Simple, actually, the ones that are using the Internet wisely are earning more than $100k annually while their competition, agents that are depending on traditional means to generate leads, are earning much less, according to "The Online Marketing Difference: Traditional Agents Earn $36,700 Annually; Internet Agents Earn $100,000+ Annually | RISMedia" by Mike Parker - http://rismedia.com/2009-05-21/the-online-marketing-difference-traditional-agents-earn-36700-annually-internet-agents-earn-100000-annually/#ixzz0Ge7CZBHx&A.

Prospect has behavior shifted dramatically; 80% of home buyers start with an Internet search so the agents that adapted to this change are found more easily by people actually ready to buy.

Mike Parker reveals what an agent needs to do to succeed using the Internet:

“All Internet real estate agents know these things:

1. You must be able to be found online by people searching for homes in your neighborhood. That means you must either maintain your own website, or you must let someone manage a site built just for you that produces these leads, and that site must employ the best in REAL SEO to make it found on the first pages of the major search engines by Internet buyers. As more people find your site, more people visit it; your traffic goes up.

2. Once people find your site, they must be incented to sign in. When they find your site, they are anonymous; you can’t call them back or answer their questions if you don’t know who they are. When 5-15% of visitors to your site sign in, you will receive enough leads to achieve consistent success.

3. In order to consistently succeed, however, you have to hold up your end: you must call all inquiries immediately and you must respond to their emails as fast as you possibly can. No less a great institution of learning than the Massachusetts Institute of Technology (MIT) says that all leads degrade substantially over time-even if not responded to in one hour. Contrast that to NAR’s finding that 50% of all agents call leads back within 54 hours, but that 50% of all agents never call them back and you’ll have no trouble understanding why so many fail at Internet Marketing.

It’s that simple, really.”

The movement of home buyers from traditional approaches to finding a house and a real estate agent to starting with the Internet was swift. Not all customer shifts are that fast and that dramatic. However, fast or slow, you must monitor your customers’ needs and buying behavior. You must change to adapt to their changes. If you do not, your competition will and you will lose.

Can Disruptive Innovation Help Health Care? Expert Clay Christensen Says Yes

Some of you were lucky enough to hear Harvard Business School professor Clay Christensen speak about Disruptive Innovation at the 2006 SCIP conference. He has applied the theory to healthcare in his newest book, The Innovator's Prescription: A Disruptive Solution for Health Care (McGraw-Hill, 2009) written with the late Jerome H. Grossman, M.D and Jason Hwang, M.D. (HBS MBA '06).

For those of you who were not at Orlando (or who were off discussing CI with Mickey and Minnie), a disruptive innovation involves a simpler approach to solving a need which ends up disrupting existing technology or business practices.

Disruptive innovation has three key elements: -First a simpler technology is developed to address the low end or straightforward needs of an existing industry. As the technology is applied more broadly, it becomes more mature and sophisticated, allowing it to address more complex applications. -Secondly, a new business model accompanies the new technology, usually uncomplicated in nature. -Lastly, a new value networks arise to support the disruptive technology and new business models.

Christensen cites innovations in the treatment of coronary artery disease as examples of disruptive innovation. Open heart surgery was the accepted standard for seriously blocked arteries when less invasive angioplasty surgery to insert stents was developed to treat partially blocked arteries. Bypass surgeries declined as angioplasties were used to treat a higher percentage of heart problems. Meanwhile statins, a class of drugs were developed to lower the blockage causing lipids and have disrupted angioplasty. While each step in this treatment pattern was clearly simpler for the patient and the medical system, the costs may not track as cleanly, according to Christensen, because our payment system is seriously flawed.

In industry after industry, the winners in disruptive technologies are new entrants as the existing participants are too busy protecting their existing technologies and business models. But Christensen urges the existing healthcare industry participants to adopt disruptive technologies themselves because these innovations are forced upon them.

“Doctors and hospitals, regulators, and policymakers need to convert to this religion because it isn't myth: it is true. The fact that cost-lowering, accessibility—enhancing disruptive enablers can address only the simplest of problems at the outset is indeed a gospel of good news. It frees physicians and hospitals to focus their energies on what they do best-tackling complex medical problems and moving more and more problems along the spectrum from intuitive toward precision medicine. However, in the history of health care, industry leaders have repeatedly lobbied for legislation and regulation that block disruptive approaches from being used anywhere until they are certifiably good enough to used everywhere. This traps the industry where it began, in the expertise-intensive world of high costs.”

“Generally, the leading practitioners of the old order become the victims of disruption, not the initiators of it. But properly educated, the leaders of the existing systems can take the lead in disrupting themselves—because while leaders instinctively view disruption as a threat, it always proves to be an extraordinary growth opportunity.”

Even you are not in healthcare; disruptive technologies have and will happen to all industries. Watch out for them, and get on the bandwagon before it rolls over you.

What Happens When Gorillas Fight?

When economic conditions are good, gorillas in different industries partner and talk about how much they value each other’s cooperation.

Cisco sold lots of network gear through Hewlett-Packard’s (HP) sales force while HP’s server sales benefited from the increased communications provided by Cisco’s networking solutions.

With growth in technology stalled, if not in reverse, Cisco and HP are invading each other’s core businesses: Cisco into blade servers, the current growth category for servers, and HP into networking, according to a front page article in the 16 March 2009 Wall Street Journal, “As Growth Slows, Ex-Allies Square Off in a Tech Turf War,” by Ben Worthen and Justin Scheck:

“Cisco plans to announce it will start building its own servers, the powerful machines that run corporate computer centers across the globe. Its "blade" server, which it designed and developed for two years under unusual secrecy, places it in direct competition with long-time partner Hewlett-Packard Co.”

“H-P has stepped up its offensive. For the past several months, it has been trying to fill ‘holes in our portfolio’ by increasing its networking offerings to many large corporate clients, says Mr. Haas, H-P's networking chief. Last fall, members of Mr. Haas's staff started calling smaller companies that sell networking products that compete with those made by Cisco. In the last few months of 2008, H-P struck deals with more than a dozen of them, packaging their products into a single piece of H-P networking gear. The new product, which H-P rolled out in January, comes with free product updates -- a service Cisco customers need to pay for -- undercutting Cisco's prices, say analysts and companies that sell Cisco gear.”

Cisco's chief technology officer “Ms. Warrior says the company's system isn't intended as a direct replacement for models from H-P and IBM. She says it is unlike others on the market because it combines server and network, eliminating the need for information-technology staff to integrate the components on their own. It also automates some functions that are currently separate.”

Cisco won a previous turf war with the telephone equipment manufacturers who focused on building high quality, reliable equipment for transmitting voice. When the Internet began to grow, Cisco rode the data communications growth wave to greatness. The old-line manufacturers tried hard to gain market share in the data communications market, but lost. Former high flyer Lucent and European manufacturer Alcatel merged to have enough bulk to stay in business while Nortel, once Canada’s largest firm, now considers the possibility of bankruptcy.

What plans are the gorillas in your industry making right now? Check out the possibilities so you do not get stomped in the battles of the titans.

Do You Compete in a Repertoire Market?

I learned new marketing concept today: repertoire markets. Customers in repertoire markets purchase multiple offerings in a product category consistently; in essence, a repertoire of items, instead of sticking to one brand.

Dr. Corkindale, professor of marketing management at the University South Australia’s International Graduate School Business in Adelaide, cites several studies in an article, “Mistakes Marketers Make” in the Oct 20 issue of The Wall Street Journal, that show consumers claimed to be loyal to one brand, but in fact, bought several different ones during the studies.

For example, “Beer is a common drink among Australian men, and many claim they wouldn’t drink any other than their favorite brand. However, data on actual behavior show that only 10% of these men are loyal to a single brand. This is typical of repertoire markets in the developed world.”

Dr. Corkindale mentioned other studies, such as gasoline, to bolster his point that loyalty to multiple brands within a repertoire is typical and marketers pay dearly for ignoring this reality.

First, they should not assume that loyal customers are the best ones. If the majority of the consumers in a marketplace buy multiple brands, then focusing on the loyal customer, who is often an infrequent purchaser, ignores the majority of the purchasing in the marketplace. For example, one spirit firm found that its most loyal customer segment were older women who bought a bottle every other year.

He mentioned a marketing manager who commissioned a study which found that her brands’ buyers switched to a larger brand more often than that brand’s customers switched to her brand. She initiated a retention advertising program which Dr. Corkindale regarded as a waste of money. Such switching behavior is typical of repertoire markets, he said. He believed that she would have been better served with a campaign focused on obtaining new customers for her brand.

Secondly, he claims that trying to increase frequency of purchase is futile. Purchasers in this type of market will not increase their total spending in response to marketing activities, just as they will not become more loyal.

He also believes that product differentiation is not always needed for success. The Toyota Corolla became extremely popular, not because it was unique in any major characteristic, but because it was overall better than other products in its class. “What most customers want is not more differentiation but products and services that are simply better at providing the routine things they expect when making a purchase.”

Repertoire products are not quite commodities; consumers do have brand preferences, but they are not strong enough to dominate purchase behavior. If I’m having a night out with friends in a bar that does not offer my favorite pint, would I leave them to drink my preferred brand at another joint?

It is possible to create a brand in a commodity market space, Perdue Chicken anyone? But overall, Dr. Corkindale appears to be basing his opinion on tangible product characteristics while minimizing the importance of intangibles, such as service and reliability, in product differentiation. I could care less what my Toyota “Mommy Car” looks like, but I care a lot about its reliability which is to me a key aspect of the Toyota brand.

The professor does have a valid point in saying review the assumptions underlying your marketing programs. They may not be valid in a repertoire market.

Are you in a repertoire market? If so, how do you effectively compete against rivals? The traditional methods may not apply. Examine your own marketing plans vs. those of your key competitors to see which organizations may gain in today’s tough market.

CI Used to Make—or Justify—Decisions?

Does your organization use CI information to make decisions or to justify decisions? Harry Beckwith stated in his newsletter Invisible Ink (September 2007) that “People do not gather data to make a decision, they gather it to justify their decision. They are not accumulating understanding, they are seeking comfort and support.”

As a CI professional, there is nothing more frustrating than working hard to obtain information which is regarded as useless by the recipient, or even worse, criticized as incorrect because it does not support the existing “truth” of management.

Does your organization use your information to justify decisions? If so, how can you break through the established thinking to get them to listen?

1. Understand what the current management believes are and how these beliefs were acquired. Maybe these presumptions were valid—at one time, but the industry or the competitor has changed since then. Or a single large customer made a statement which was interpreted to the whole universe of clients.

2. Acknowledge the belief in presentations or papers.

3. Explain why the industry/customer base/competitor changed and therefore the belief has changed

4. State the new information

5. Document and establish the creditability of the sources. This is why I provide transcripts of all conversations with sources. I, a consultant, am not making the statement, but important client X is or a reputable source at a key competitor is. It may be difficult for you to interview competitors, but quotes from its management, photos from a trade show exhibit, or statements by third parties who are creditable to your management may work.

6. Update your resume. If your management does not listen and does not want to change its established beliefs, then find a job in which your hard work will be appreciated, either inside your organization or outside.

Good luck. This is a tough position to be in. Does any reader have any other good suggestions on how to handle this situation?

Money Can’t Buy You Love, But…

It can buy six cities with a total projected population of nearly five million, an airline (or two), and the globe’s largest indoor ski slope among other things.

The six cities are being built by Saudi Arabia to provide jobs to its rapidly growing population and replace oil revenue when its reserves finally go dry according to a July 17, 2008 article in washingtonpost.com “Saudis look beyond oil to new economy: Kingdom hoping to survive the end of its natural resources” by Faiza Saleh Ambah. One city, named Knowledge Economic City, will focus on scientific research and development. Another seeks foreign expertise in heavy manufacturing with high energy and space needs. Several Chinese firms have already signed up.

Saudi Arabia will spend $100 billion to create these cities, but since it projects receiving $700 billion for its oil in the next two years, funding is not a problem.

Dubai, part of the United Arab Emirates, owns Emirates Airlines which is currently the world's fastest-growing carrier. By 2015, Emirates Airlines plans to be the largest airline in the world, according to “AIRLINES; Emirates eyes U.S. to reach lofty goal; Carrier aims to become the largest by 2015. It and Dubai have fueled each other's growth.” by Peter Pae, Los Angeles Times, Jan 7, 2008.

Emirates Airlines was founded to facilitate the tourism and financial businesses in Dubai, which is running out of oil faster than other Middle Eastern nations.

“Started in 1985 with two leased planes, Emirates now operates a fleet of 112 long-haul, wide-body jets. It gets a new plane -- typically costing $200 million to $300 million each -- about every two weeks, and it has placed orders for 245 planes worth $60 billion.”

“It is the largest buyer of the $350-million, double-decked Airbus A380, the world's largest passenger jet. It has ordered 58 of them, nearly a third of all orders for the plane.”

Emirates has expanded into aircraft maintenance and leasing, leveraging its expertise and oil money into new revenue streams.

And if you are planning to vacation in Dubai at one of its posh resorts, do not forget to bring your credit cards to use at the world’s largest mall, a 12.1 million square feet behemouth, or your ski parka so you can ski at the world’s largest indoor ski facility.

The Middle East’s massive oil reserves will eventually run out although experts are debating when. The governments have recognized the need to create viable long term businesses to provide jobs for restive populations and income for the post-oil era. While your organization may not have a oil-funded competitor now, the vast quantity of funding available to these nations leave little doubt that formidable rivals can be developed over time.

Are you tracking the interests and investments of these nations for competitive activities? If not, may be you should.

Best Kept Secret of US Business is the ROI of Marketing is Zero or Less

According to best selling author and consultant Kevin J. Clancy, Ph.D, 84% of marketing programs disappoint the creators and that the Marketing Science Institute found that advertising had to be doubled to increase revenue by 1%. Dr. Clancy spoke to the annual joint meeting of Boston chapters of SCIP and the Association of Strategic Planning on March 26, 2008.

Why are marketing returns so low? “Decision making based on intuition—a habit that dies hard.” Also, “using competitors to guide decisions.” While these two reasons may appear to be contradictory, they both result from poor use of information.

Since intuition is by my definition the unconscious processing of information, the user does not understand the value or the limits of intuition. If intuition is based on extensive experience in the field, it could very likely to result in a good decision, but intuition results from the comments made by one customer the previous week, it can lead in the wrong direction.

All businesses should use competitive information in their decision-making, but they need to do it in the context of their own strategy and the strategies employed by rivals. A firm should not copy the competitor’s marketing program without understanding how it supports, or conversely does not support, the rival’s strategy, and how it would correspond with your employer’s strategy.

Dr. Clancy ended his presentation by reminding us to be more clear headed and analytical about marketing. Then a marketing campaign can increase sales 20% or more and truly be transformational for the company—and its competitors.

For more information on Dr. Clancy, please contact Copernicus Marketing (www.copernicusmarketing.com).

Who Wins as the Economy Tanks?

Some companies do well during recessions. VARBusiness listed dozens that are gaining during the current downturn. Who are they? Hint: they’re not the dominant player in their markets. They are the lesser known vendors which offer better price/performance than the number one company does. With higher energy and other costs pressuring organizations to find savings, buyers are more receptive to considering alternatives that save their employers’ money or fit tighter budgets.

VARBusiness, in its February 2008 cover article, “Attack of the Alternatives,” quoted Matt Medeiros, president and CEO of SonicWall Inc. which competes against Cisco in network security products. “Medeiros points to a nearly $1 million, multiyear deal with a semiconductor company that pitted SonicWall and one of its partners against a Cisco offering in a Cisco-dominated IT network environment. The SonicWall solution not only came in at a substantially lower price, but also was ‘easier to use and manage across the large-scale network,’ he said. ‘They truly looked at total cost of ownership and we won hands down,’ said Medeiros. ‘Given the current economic trends in North America with budgets being tightened, the CIO felt that he absolutely had to consider an alternative and that is how we got brought to the party. It was an absolute Cisco environment.’”

Does your organization compete against an entrenched dominate player? Consider turning up your price/performance message and sales resources to capture new opportunities. Conversely, if your firm is a dominant player, research how your competitors will seek to take advantage of the soft economy and develop tactics to counter them.