tag:blogger.com,1999:blog-40462365888361151622024-03-13T01:08:46.445-04:00expertscoopKnowledge, analysis and commentary by industry practitioners and thought leaders in strategy, retail, marketing & mediaPeter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-4046236588836115162.post-39233323034289213062021-07-22T22:58:00.004-04:002021-07-23T10:43:48.637-04:00Retail Media Networks, Part 2: Why the Hype?<div class="separator" style="clear: both; text-align: center;"><img border="0" data-original-height="384" data-original-width="960" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFYtHkSOHP2NPdKcCTpSgvjLirhvy8kkMnpDnDisytKxEPp3xeKTrp7n4bL6MO5ueOCjX4LlXt9o3uc119jOvx9hF5lDJqTmGIDuv6KZXbZbpl8vOM7JQxeiGWP52Wv0jT5SJeke9NJkf0/w640-h256/Retail+Media+4.png" width="640" /></div><br /><span style="font-family: verdana;">Let’s talk about retail media. <br /><br />More specifically, the reasons underlying all the excitement about – and investment in – retail media networks (RMNs) launched by major retailers, which is the focus of this article, Part 2 of a 4-part series.</span><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;"><a href="https://www.expertscoop.com/2021/06/retail-media-networks-part-1-what-are.html">In Part 1, I covered the origins and definition of RMNs</a>; in Part 3, I will paint a picture of where different retailers stand in their journey of launching their respective RMNs; and in Part 4, I will offer my hypotheses on what needs to happen in the retail media space for RMNs to live up to their widely publicized potential.<br /></span><div><span style="font-family: verdana;"><br /><span><a name='more'></a></span>How does one assess the attractiveness of an advertising medium or a media vehicle?<br /><br />Whether you are an advertiser looking to put your marketing budget to work, an investor looking to deploy capital in the media space, or the owner of a physical or digital asset looking to monetize it as media, I believe you should evaluate three principal factors:<br /><ol style="text-align: left;"><li><span style="font-family: verdana;"><b>Market Size</b>: How much money in aggregate are marketers willing to invest to advertise or promote their product via this medium?</span></li><li><span style="font-family: verdana;"><b>Media Potential</b>: How powerful, unique, effective, or efficient is the media channel or media vehicle?</span></li><li><span style="font-family: verdana;"><b>Returns Incrementality</b>: Is the medium capable of delivering meaningful incremental return on ad spend (ROAS) above and beyond other mass media?</span></li></ol><br />When examined through the above lens, retail media has the potential to be extremely attractive – especially if all the hopes and assumptions of how this medium advances from here actually bear out.<br /><br /><b>Market Size</b><br /><br />Amazon launched its advertising business around 10 years ago, and by 2019, it had syphoned more than $10B in ad spend away from the online digital media duopoly that was Google and Facebook. That business has been on a tear ever since, and eMarketer now forecasts that Amazon ad revenues will top $30B by 2023. This runaway success story is probably singlehandedly responsible for the exploding interest and investment in retail media networks.<br /><br />So how much money is there for RMNs to capture?<br /><br />Let’s start with a narrower view of demand by first focusing on consumer-packaged goods (CPG) marketers and the size of their advertising and marketing budgets. Data from Cadent Consulting research are a widely quoted source on the subject and provide the foundation for my analysis of the target addressable market (TAM) that RMNs can go after (see <b>Figure 1</b>).</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Given the array of advertising and promotional vehicles offered by RMNs, which I described in <a href="https://www.linkedin.com/pulse/retail-media-networks-part-1-what-peter-moustakerski/">Part 1 of this series</a>, nearly half of the $225B CPG companies spend on marketing is addressable by retail media. That’s over $100B in marketing spend by CPG advertisers alone.<br /><br /><img border="0" data-original-height="3388" data-original-width="6000" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifhHxXfCk85z0yYN4YkRyBuS9U0u9nVCH0xGPOLlRazwuiBYwwOM1nlAVPaAAX4ySgmkzPwsiwD6H-IlvGb3mMpbPNKXuEnxxGeEpYH25YyywkwTI1ShN5hztnJ5C2_Z0U9Jyu0a-9NxCr/w640-h362/Retail+Media+TAM.png" width="640" /><br /><div style="text-align: center;"><b style="font-size: small;">Figure 1. </b><span style="font-size: small;">2020 CPG Annual Marketing Spend in the U.S. (Source: Cadent Consulting)</span></div><div style="text-align: center;"><br /></div>If we broaden the scope to capture all advertisers across industry verticals, including big-spender brands in financial services, automotive, telecom, and entertainment, the RMN TAM more than triples. Data by Winterberry Group estimates the total advertising and marketing spend in the U.S. to be over $400B, and three-quarters of that is addressable by retail media.<br /><br />Furthermore, these numbers only count what advertisers are spending on RMN-addressable tactics <i>today</i> – not accounting for any major future shifts away from traditional marketing channels (e.g., TV, radio, print) and into RMN vehicles. Trends over the past decade have shown significant budget movements away from traditional media and into digital and retailer-owned channels. According to Cadent data, traditional advertising spend has shrunk from $55B in 2013 to just over $28B in 2020, while digital has exploded from under $5B to more than $50B in the same period.<br /><br /><b>Media Potential<br /></b><br />Assessing the intrinsic value of an advertising medium is far from simple, and the process is not always entirely objective. Marketers evaluate many quantitative and qualitative factors that affect the attractiveness or effectiveness of an advertising medium, leaning heavily on past performance, but also looking at where technology and consumer behaviors are headed in the future. Often, personal biases, top-down directives from superiors, and even pure marketplace hype enter into the equation and sway marketers’ decision of where to invest their budgets.<br /><br />My framework for assessing the potential value of a media channel or vehicle (shown in <b>Figure 2</b>) is certainly a simplification of this complex and constantly changing equation, but it covers the six attributes that, in my experience, are most important to the real and perceived <i>intrinsic value potential </i>of any media channel. Many of these (e.g. reach, frequency, and recency) are well-established industry metrics for assessing media channels, and some of them (e.g., attention and relevance) are just emerging and starting to be embraced by marketers.<br /><br /><img border="0" data-original-height="3388" data-original-width="6000" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikc1FDtRBPBaM7hnDb6pFsyBpdsyNL5vm4UvQOFwnoA94cWPySOtE3vfrDnt82eng8o20Im2GcsBcEtGJr47iQXe2Gk8AHd0sNAYPPfaHqw7JUxjcRqPqxnflkPJCOHj06dnyQKA8mR8u5/w640-h362/Media+Value.png" width="640" /><br /><div style="text-align: center;"><span style="font-size: small;"><b>Figure 2. </b>The Media Potential framework – intrinsic value attributes of media vehicles</span></div></span></div><div><div style="text-align: center;"><span style="font-family: verdana;"><br /></span></div><span style="font-family: verdana;"><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Reach</b></span></li></ul></span></div></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"><span style="font-family: verdana;">The number-one priority for any marketer when assessing a media tool is “scale,” and the one metric essentially synonymous with scale is audience reach. The number of consumers who have the opportunity to see a brand’s message is critical to planning and managing marketing campaigns. Retailers with the most advanced RMNs have certainly caught on to that. Amazon’s Prime membership of over 200M subscribers worldwide is the envy of the industry. Walmart touts the 150M weekly visitors to its physical and digital properties and the fact that “90% of Americans shopped at Walmart in the past year.” And Kroger boasts 60M loyalty members, 9M daily shoppers, and 2.8B annual visits – all metrics prominently advertised on its RMN website.</span></div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"> </div></div></blockquote><div><div><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Frequency</b></span></li></ul></div></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"><span style="font-family: verdana;">Marketing is about influencing customers’ decision whether to buy or what to buy. The more frequently a product is purchased the more opportunities marketers have to impact behaviors. That is largely why CPG marketing budgets account for more than half of all marketing spend across industries. There aren’t many things we buy more frequently than groceries, personal care items, and home consumables. “High” frequency is not in itself the objective. But because fast-moving consumer goods (FMCG) retailers attract their loyal shoppers at least once a week, they can offer marketers the opportunity to activate sophisticated, high-precision campaigns that have a natural “frequency cap” and thus reach target audiences at significant scale while minimizing wasteful ad spend.</span></div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"> </div></div></blockquote><div><div><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Attention</b></span></li></ul></div></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div><div><span style="font-family: verdana;">Just because a medium can reach millions of people with great frequency, doesn’t mean that they all are actually seeing the message, let alone paying attention to it. The concept of “viewability” emerged in digital media over the past decade, as marketers looked to ensure that their ads were not merely served up on a web page visited by their target audience but were actually displayed in the visible space of the in-focus tab of the browser for at least a second. Online display and video ads’ viewability rates are generally in the 50-70% range, with YouTube ads topping the charts at 90%+ viewability.</span></div></div><div><div><span style="font-family: verdana;"><br /></span></div></div><div><div><span style="font-family: verdana;">More sophisticated measures of media exposure quality are now emerging, such as the “attention” metrics based on factors such as coverage, clutter, duration, and position of ad placements. Retail media, especially inside the physical store, has the potential to command almost undivided attention from grocery shoppers – a performance level traditional broadcast and digital media channels would have a hard time delivering.</span></div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div><div> </div></div></blockquote><div><div><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Relevance</b></span></li></ul></div></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"><span style="font-family: verdana;">The context within which an ad is presented can have a tremendous impact on the outcomes it generates. Catching the target audience in the right moment, in the right state of mind, when they are most likely to notice and be receptive to the advertising message, is of critical importance.</span> </div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"> </div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"><span style="font-family: verdana;">Seeing an add for an online investing platform (e.g., E-Trade or Schwab) while browsing, say, the Yahoo Finance page would be a lot more effective than seeing the same add while checking NBA game scores and commentary on the ESPN website. The main reason Google Search brings in over $100B in ad revenue is the ability to target ads based on keywords in the user’s search terms, making them highly relevant to whatever the user is exploring or planning in that moment.</span></div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"> </div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"><span style="font-family: verdana;">For deep-pocketed CPG marketers, the best moment to influence their target shoppers is when they are planning meals or shopping for groceries. When it comes to offering the best contextual relevance for CPG advertisements, it’s hard to beat retail media, both online and in-store.</span> </div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><div><div style="text-align: left;"> </div></div></blockquote><div><div><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Recency</b></span></li></ul></div></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div><div><span style="font-family: verdana;">Erwin Ephron, the late advertising guru, who is considered “the father of modern media planning” and “the inventor of ‘<i>recency</i>,’” famously wrote: “A single exposure can work … because it is the last of series of brand messages consumers see. It is effective this time because that consumer is now in the market.”</span></div></div><div><div><span style="font-family: verdana;"><br /></span></div></div><div><div><span style="font-family: verdana;">The “last-click attribution” model, which gives all the credit for a conversion event (e.g., online purchase) to the last ad the buyer clicked on before making the purchase, is a prominent application of Ephron’s “<i>recency theory</i>.” It is a widely used model in online media, and another reason why paid search has seen such remarkable influx of advertising budgets, though most experts agree that attributing 100% of the conversion effect to the last ad seen is not reflective of reality.</span></div></div><div><div><span style="font-family: verdana;"><br /></span></div></div><div><div><span style="font-family: verdana;">Regardless of how much weight one believes should be assigned to recency, there’s little doubt of its importance to the business results marketing delivers. For CPG advertisers looking to apply recency models to optimize their marketing spend, digital and analog media vehicles offered by FMCG retailers are extremely attractive. As the oft-quoted <a href="https://memberconnect.shopassociation.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=af210ce1-cdb1-d6fb-7306-8970cb321e60">2014 study by POPAI </a>shows, grocery shoppers make 76% of their purchase decisions in-store.</span></div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div><div> </div></div></blockquote><div><div><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Data</b></span></li></ul></div></div><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div><div><span style="font-family: verdana;">Understanding the factors that impact the relative effectiveness of their marketing investments is not just of academic interest to marketers, it is of vital importance for having the budgets allocated to them in the first place. Doing so with deterministic (not modelled) data, at scale, and in as close to real time as possible is the holy grail of marketing.</span></div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div><div> </div></div></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div><div><span style="font-family: verdana;">Before the internet, measuring mass media generally relied on sampling a panel of consumers and extrapolating from that limited sample. With the advent of online advertising and other digital media channels, it became possible to digitally record almost every step the consumer takes along the marketing funnel – from the opportunity to see an ad to hovering their mouse pointer over the ad to clicking on it to clipping a digital coupon or discount code to searching for a product to ultimately buying it on an e-commerce website. All that is made possible by the individual-user data captured by internet browsers.</span></div></div><div><div><span style="font-family: verdana;"><br /></span></div></div><div><div><span style="font-family: verdana;">In the physical world, that kind of “data trail” is generally not available to marketers. But out-of-home, place-based, and in-store digital solutions are beginning to weave the data fabric necessary to measure traffic, attention, interest, and interaction with ads and merchandise inside brick-and-mortar stores. Add to that the vast first-party shopper audiences within retailers’ loyalty databases and the SKU-level purchasing data their checkout systems capture daily, and RMNs promise the most valuable collection of data sources for marketers to track omnichannel ad exposure and consumer actions at the individual (or household) level.</span></div></div></blockquote><div><span style="font-family: verdana;"><br /><b>Returns Incrementality<br /></b><br />Let’s first agree on what the term “mass media network” means. My practical definition of what it takes to be a “mass media network” is rooted in four necessary characteristics:<br /><ol style="text-align: left;"><li><span style="font-family: verdana;"><b>Massive Reach</b>: This is the “mass” part. For any media network to be considered “mass” in the U.S., in my view, it should be capable of reaching at least ~50M households or ~100M individuals with a frequency of at least once per week.</span></li><li><span style="font-family: verdana;"><b>Universal Coverage</b>: This is the “network” part. As massive as Walmart’s reach is, a single retailer by itself does not make a network – it is the equivalent of a local affiliate station in TV. To have a mass media network, you need universal nationwide coverage of the outlets where your target audiences are.</span></li><li><span style="font-family: verdana;"><b>Efficient Transactions</b>: Mass media requires efficient, low-friction, and transparent transaction mechanisms. That means easy-to-access marketplaces that can transact across the entire network, agencies and/or exchanges that aggregate supply and demand, and established processes to set prices and clear transactions.</span></li><li><span style="font-family: verdana;"><b>Common Currency</b>: Mass media networks also require common standards (e.g., ad unit form factors) and universally accepted performance measurement KPIs. Each of the four established mass media have well-understood and time-honored “currency” metrics (e.g., GRPs and TRPs for TV or CTR for online ads) to plan, measure and optimize campaigns and establish a clear ROAS.</span></li></ol><br />That brings us to the concepts of “saturation” and “incrementality” in media.<br /><br />To give credit where credit’s due, much of the thinking, knowledge and concepts in this section I have learned from or developed thanks to my former colleague and prominent media measurement and marketing insights expert, <a href="https://www.linkedin.com/in/ethanrapp/">Ethan Rapp</a>.<br /><br />What is the marginal value of the next dollar of ad spend in a given mass media channel? If TV or paid online search have proven to deliver excellent returns for a brand marketer, does that mean they should continue to invest additional funds in those two channels? Does incremental investment result in proportionately incremental return on ad spend (ROAS)?<br /><br />The short answer is <i>no</i>. The relationship between ad spend and ROAS (which is generally calculated as the new revenue generated by a marketing campaign divided by the cost of the campaign) is not linear. ROAS in any media channel follows a concave or S-shaped response curve that flattens out (or even begins to dip down) beyond a certain level of spend – a point of diminishing (or even negative) returns. The fundamental reason for this phenomenon is the fact that, for any media channel, there is a natural audience saturation point, beyond which any new impressions an advertiser pays for no longer reach new audiences but rather end up hitting the same people, who are not going to buy more just because they saw the same ad again and again.<br /><br />To combat this effect, marketers invest in a <i>mix </i>of mass media channels that are complementary and produce a meaningful incremental return. The goal is to invest in any one channel up to the point of audience saturation and then layer on the next mass medium (see <b>Figure 3</b>) to reach new audiences or catch existing audiences in a different context or moment, resulting in incremental returns.<br /><br />The challenge marketers have is that there are really only <u>four</u> mass media in existence today to layer and achieve the above ROAS incrementality and maximization:<br /><ol style="text-align: left;"><li><span style="font-family: verdana;"><b>Broadcast</b>, including TV and radio,</span></li><li><span style="font-family: verdana;"><b>Print</b>, including newspapers and magazines,</span></li><li><span style="font-family: verdana;"><b>Digital</b>, including web, mobile, social, and email,</span></li><li><span style="font-family: verdana;"><b>Out of Home (OOH)</b>, including outdoor, transit, and place-based media.</span></li></ol><br />Leading RMNs are certainly “mass enough” based on their audience reach, frequency and coverage. They generate an abundance of valuable data that can be used to plan, target, activate, measure and optimize media campaigns in ways superior even to established mass media. But most importantly, they <i>promise incrementality </i>of ROAS above and beyond the established four mass media. Retail could become the fifth mass medium.<br /><br /><img border="0" data-original-height="847" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrtXYQg5y1bcR4xcpD371G8bMc1b5-pUiMIsPfEUPtyEmp2PzvqQtvZ0g9BllwNUut46oWVw7z9aD0fG076t_r3ak3r5kFiu-SMTNDXNs_ZxHempJBcasE5eaVksaziDA88DTZGuwlg4B5/w640-h362/Retail+Media+Incrementality.png" width="640" /><br /><div style="text-align: center;"><span style="font-size: x-small;"><b>Figure 3. </b>Media Saturation and Incrementality model (special thanks to <a href="https://www.linkedin.com/in/ethanrapp/">Ethan Rapp</a>)</span></div><div style="text-align: center;"><br /></div>What is the basis for this belief? First, RMNs are likely reaching at least some people who are not being exposed or paying enough attention to other mass media, thus unlocking returns from incremental audiences. Second, even audiences that may have been saturated by other mass media but didn’t make a purchase, are potentially being converted by RMNs because retailers are reaching them in a different and highly relevant context – in the middle of their shopping trip, rather than, say, at home or during their commute.<br /><br />This promise of becoming the next mass medium and delivering meaningful ROAS incrementality is the main reason why RMNs are attracting so much attention and excitement.<br /><br />Whether RMNs will live up to that promise remains to be seen. What is required for that to happen, as well as where individual retailers stand today, are the topics of the next two articles of this 4-part series.</span><div class="separator" style="clear: both; text-align: center;"><br /></div></div><div style="text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6Vc6QJmN-r6kcw3gLouL_qs_UAljO65zCX3-5tN-pFvBSD2TAscRrJ_qtcYu7bu0OeCt0a1u1fhnikvGbG0L_ET0jBn5nQTK2y6i4fiSjJ0akw7uo5Hwn2RvEE6NjR3R8lwTqGe4Fo574/s0/NEW-expertscoop-square-tile-XS.png" /></a></div><br /><span style="font-family: verdana; font-size: x-small;"><br /></span></div>Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com0New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-41754307900696246722021-06-28T22:06:00.003-04:002021-06-29T12:29:13.688-04:00Retail Media Networks, Part 1: What Are They?<div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLyQKE71d97xYI3oJ5BFOXwTCKAFvg6aT-9dxRmhFbHKY5D-W0vvM6CT8JnnfiuN8lVh1unvv5VL7hY4OLjFpv_biUd7sJ_HqwotV4cHHCUnDLC4VY4hSoSOhCkmGTH17iEapA3ptOakXV/s959/Retail+Media+2.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="384" data-original-width="959" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLyQKE71d97xYI3oJ5BFOXwTCKAFvg6aT-9dxRmhFbHKY5D-W0vvM6CT8JnnfiuN8lVh1unvv5VL7hY4OLjFpv_biUd7sJ_HqwotV4cHHCUnDLC4VY4hSoSOhCkmGTH17iEapA3ptOakXV/w640-h256/Retail+Media+2.png" width="640" /></a></div><br /></div><span style="font-family: verdana;">Let’s talk about retail media.</span><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">More specifically, the rise of retail media networks launched by major retailers, looking to build new, sizeable, and highly profitable media revenue streams by taking advantage of their large audiences of loyal shoppers and the vast amounts of purchase data they collect from these shoppers. <br /><br />In this 4-part series, I take a look at the origins and definition of retail media networks (or RMNs), examine the reasons for the rising interest and investment in RMNs, assess where different retailers stand in their evolutionary journey of launching and monetizing their RMN, and offer my point of view on what needs to happen in the retail media space in order for RMNs to live up to and deliver on their widely publicized potential.</span><div><span style="font-family: verdana;"><br /><span><a name='more'></a></span>Let’s start with an important definition. What is “retail media”? Here’s my version: <br /><br /><i><b>Retail Media Definition</b>: Marketing tools, both advertising and promotional, a retailer offers that either: <br /></i><ol style="text-align: left;"><li><span style="font-family: verdana;"><i>Activate on the retailer’s own properties (both physical and digital) to reach the audiences of consumers who shop at its stores (a.k.a. “onsite media”), or </i></span></li><li><span style="font-family: verdana;"><i>Utilize the data the retailer collects from its daily operations to reach and target these same (and other) consumer audiences on media properties (both physical and digital) owned by other companies (a.k.a. “offsite media”). </i></span></li></ol><br />Over the past 2-3 years, many major retailers have launched retail media offerings, in some cases organizing and marketing them as separate entities from their core retail business. These include the largest players, such as Walmart, Target, Kroger, Best Buy and The Home Depot, but also top drugstore chains Walgreens and CVS, supermarket chains Albertsons and Ahold, and even dollar chains like Dollar General and regional grocers like Wakefern, Hy-Vee and Southeastern Grocers (SEG). And let’s not forget the retailer, who is probably singlehandedly responsible for the current excitement surrounding RMNs: Amazon. <br /><br />The observations and analysis throughout this 4-part series apply to any retail class of trade, but I will focus my attention on retailers that sell consumer packaged goods (CPG) and represent a significant proportion of annual CPG sales. They are generally referred to as fast-moving consumer goods (or FMCG) retailers and include the following five classes of trade: <br /><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Food </b>– e.g., supermarket operators Kroger, Albertsons/Safeway, Ahold, </span></li><li><span style="font-family: verdana;"><b>Drug </b>– e.g., pharmacies Walgreens, CVS, RiteAid, </span></li><li><span style="font-family: verdana;"><b>Dollar </b>– e.g., Dollar General, Dollar Tree, Family Dollar, </span></li><li><span style="font-family: verdana;"><b>Mass </b>– e.g., big-box retailers Walmart, Target, and of course, Amazon, and </span></li><li><span style="font-family: verdana;"><b>Club </b>– e.g., membership discounters Sam’s Club, Costco, and BJ’s. </span></li></ul><div><span style="font-family: verdana;"><br /></span></div>There are several reasons to focus on FMCG retailers when analyzing RMNs: <br /><ol style="text-align: left;"><li><span style="font-family: verdana;"><b>Budgets</b>: CPG companies are the world’s top marketing spenders. CPG budgets account for 40% of all marketing dollars spent on advertising, promotions, and other marketing activities. </span></li><li><span style="font-family: verdana;"><b>Frequency</b>: Most people shop at FMCG retailers at least weekly – much more frequently than shopping for other non-CPG products. That kind of velocity of engagement creates ample opportunities for marketers to drive awareness, alter behaviors, and motivate purchases. </span></li><li><span style="font-family: verdana;"><b>Data</b>: Given the high-frequency of purchases and the vast number of product SKUs, the data captured by FMCG retailers’ point-of-sale (POS) systems, which includes every product in every customer’s basket, is of tremendous value to analytics teams looking to construct advanced algorithms to measure return on advertising spend (ROAS). </span></li><li><span style="font-family: verdana;"><b>Sophistication</b>: CPG companies, by virtue of their size and history, are the most sophisticated and inventive marketers, driving much of the innovation and advancements in the art and science of marketing, and thus deploying a much more diverse and advanced set of media and marketing vehicles in their campaigns than players in other verticals do. </span></li></ol><div><span style="font-family: verdana;"><br /></span></div>The first step to understanding RMNs and their potential – and the focus of Part 1 of this 4-part series – is to have a clear understanding of the advertising vehicles and marketing tactics that today comprise the arsenal of retail media. They can be grouped in three categories: <br /><br /><b>Traditional Analog Media </b><br /><br />These retail media tactics have been around for decades, and even centuries. Think of all the physical advertising messages and promotional activities that you encounter inside and around a brick-and-mortar store when you go shopping. This is not an exhaustive list, but here are the most common ones: <br /><br /><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Printed Circular </b>– printed weekly booklet containing special deals and featured products and distributed in the store or delivered by mail or as newspaper insert to consumers’ homes</span></li><li><span style="font-family: verdana;"><b>In-Store Signage </b>– signs, posters, banners around the store, including in the entrance area, stanchions and ceiling-mounted frames, over checkout lines, and special sections of the store, like the deli, seafood, pharmacy, etc. </span></li><li><span style="font-family: verdana;"><b>Outdoor Signage </b>– posters, billboards, and other signage outside the store, including signs just outside the store entrance, signs and banners on the store façade, posters at the cart corrals, and in different spots across the parking lot (part of the larger “Out-of-Home” or “OOH” media fabric). </span></li><li><span style="font-family: verdana;"><b>In-Store Displays </b>– merchandising displays, usually temporary, in different locations throughout the store, including endcaps, in-aisle, and action alleys. </span></li><li><span style="font-family: verdana;"><b>Shelf Talkers </b>– signs and blades clipped directly onto grocery store shelves next to the products they are advertising, a.k.a. “aisle violators.” </span></li><li><span style="font-family: verdana;"><b>At-Shelf Coupons</b> – mechanical coupon machines, tearpads, and take-one dispensers clipped to the shelf or attached to a freezer door, and instant redeemable coupons attached to product packaging. </span></li><li><span style="font-family: verdana;"><b>Cart Ads </b>– advertisement panels on the front of shopping carts (both facing the shopper pushing the cart and facing out) and on the baby seat or handlebars of the cart. </span></li><li><span style="font-family: verdana;"><b>Floor Decals </b>– advertisement signs in the form of large vinyl “stickers,” installed right at the shelf where the product is merchandised or anywhere else throughout the store. </span></li><li><span style="font-family: verdana;"><b>In-Store Sampling</b> – promotional campaigns that offer shoppers a free sample, a tasting, or a demo of the product, usually involving a sampling station attended by a store associate. </span></li><li><span style="font-family: verdana;"><b>Checkout Dividers </b>– 16-inch plastic bars used by cashiers to separate grocery items belonging to different customers. </span></li><li><span style="font-family: verdana;"><b>Receipt Ads </b>– product and service ads pre-printed on the back of the thermal-printer receipt tape. </span></li><li><span style="font-family: verdana;"><b>At-Till Coupons </b>– electronic coupons activated in real time by the contents of the shopper’s basket and printed either directly on the thermal-paper receipt or by a separate printer next to the POS terminal, such as that operated by Catalina Marketing. </span></li><li><span style="font-family: verdana;"><b>Direct Mail </b>– physical mailers, including retailer-branded newsletters and magazines, “co-op mailers” (featuring multiple CPG brands), and “solo mailers” (sponsored by and dedicated to a single brand), sent to the home address of a retailer’s customers. </span></li><li><span style="font-family: verdana;"><b>At-Home Sampling</b> – a box of free samples delivered at home to a retailer’s customers, most commonly used for products in the health and beauty, personal care, and baby categories. </span></li></ul><br /><b>Onsite Digital Media <br /></b><br />With the advent of the internet, online advertising, e-commerce, and mobile technology, retailers gradually built a whole new set of owned digital media assets, through which they could now reach their shoppers electronically beyond the four walls of brick-and-mortar stores. With these new media properties, retailers joined other owners and operators of popular websites as “publishers” (i.e., media “real estate” owners) in the fast-growing world of digital and mobile media. <br /><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Onsite Display </b>– online advertisements, a.k.a. “digital display” leaderboard banners and side-panel ads, on a retailer’s own consumer-facing websites. </span></li><li><span style="font-family: verdana;"><b>Digital Circular </b>– a PDF file or HTML replica of the print circular provided on a retailer’s website or digitized with rich interaction features (e.g., “clip to card”) and provided inside the retailer’s mobile app or by third-party shopping and savings apps. </span></li><li><span style="font-family: verdana;"><b>Targeted Email </b>– promotional email vehicles, such as weekly newsletters, seasonal campaigns, or personalized messages (e.g., targeted by segment or for individual occasions), containing ads, product features, and promo offers. </span></li><li><span style="font-family: verdana;"><b>In-App Media </b>– digital ads, including homepage banners, hero sliders, native ads, interstitials, popups, and video, delivered inside the retailer’s own mobile app. </span></li><li><span style="font-family: verdana;"><b>Product Search </b>– sponsored-search ads and premium product placement (e.g., at the top of the search results) on a retailer’s e-commerce site, based on their proprietary data of the consumer’s history, preferences, and demographics. </span></li><li><span style="font-family: verdana;"><b>Digital Coupons </b>– electronically distributed coupons, which can either be printed and presented at checkout (“print-at-home” or “PAH” coupons) or “clipped” to a consumer’s loyalty-card account and automatically redeemed the next time they shop with that retailer (“load-to-card” or “L2C” coupons). </span></li><li><span style="font-family: verdana;"><b>In-Store Radio </b>– audio ads (usually, 30-second slots) inserted at set intervals throughout the digital stream of in-store ambient music and delivered via retailer’s in-store audio system. </span></li><li><span style="font-family: verdana;"><b>In-Store Screens </b>– digital display monitors, sometimes interactive, installed in different locations throughout the store for both advertising and merchandising purposes, and either operated by the retailer or activated by a third party as part of a multi-location digital place-based media network. </span></li></ul><br /></span></div><div><span style="font-family: verdana;"><b>Offsite Digital Media <br /></b><br />Onsite – think of it as “digital media 1.0” – is publishers attracting valuable audiences to their digital properties and monetizing their proprietary access to these eyeballs. Offsite is “digital media 2.0,” whereby publishers collect proprietary data about the preferences and actions of the audiences who come to their digital (and physical) venues and leverage these data to access and monetize the same (or similar) audiences in venues they do not own. Retailers’ rich and unique first-party data is what allows them to be increasingly powerful players in offsite and programmatic digital media. Retailers either work with established ad-tech players (e.g., data onboarders, DMPs, DSPs, SSPs) or internalize some of these components within their in-house media groups. <br /><ul style="text-align: left;"><li><span style="font-family: verdana;"><b>Offsite Display </b>– managed-service online ads, including banners, side-panels, hero sliders, interstitials, popups, and video, etc., offered on third-party websites and mobile app properties. </span></li><li><span style="font-family: verdana;"><b>Programmatic Display </b>– online advertisements on third-party websites and mobile apps, accessed and transacted algorithmically in real time via automated ad exchange platforms. </span></li><li><span style="font-family: verdana;"><b>Online Search </b>– sponsored ads and premium placement (i.e., at the top of the search results) on Google and other major online search platforms. </span></li><li><span style="font-family: verdana;"><b>Social Media </b>– digital advertisements, activated either programmatically or via a managed-service provider, within user feeds on major social media platforms. </span></li><li><span style="font-family: verdana;"><b>Influencer Marketing </b>– a form of digital “content marketing” involving endorsements and the creation and distribution of paid content by social media influencers with significant following. </span></li><li><span style="font-family: verdana;"><b>Targeted SMS </b>– digital ads, including text blasts, personalized messages, and location-triggered texts, delivered directly into the text-message inboxes of target audiences. </span></li><li><span style="font-family: verdana;"><b>DOOH </b>– programmatic or managed-service ads activated in a variety of “Digital Out of Home” networks, including digital billboards, poster boards, and various monitors in highly trafficked locations, such as transit hubs, transportation arteries, stadiums, malls, movie theaters, etc. </span></li><li><span style="font-family: verdana;"><b>Connected TV </b>– digital TV ads and content delivered programmatically to viewers utilizing internet-connected smart TVs, computers, tablets, and phones used for video streaming, over-the-top (OTT) boxes, and gaming consoles. </span></li></ul><br />In addition to selling the above tactics à la carte, many retailers, such as Kroger, Albertsons and SEG, are offering <b>Bundled Solutions</b>, combining several tactics that together aim to solve a specific need for brand managers. The most common multi-tactic packaged programs (a.k.a. “integrated solutions”) include New Product Launches, Event Amplifications, Seasonal/Themed Events, and Brand Support/Loyalty Programs. <br /><br />Finally, the overview of retail media offerings would not be complete without mentioning the efforts most retailers are making to monetize what is arguably their most prized strategic asset – their massive and proprietary shopper data. Most major retailers – Kroger, through its 84.51° unit, is probably the market leader in this space – are leveraging their household-level loyalty and POS transactions datasets to create compelling <b>Media Targeting and Measurement </b>tools that enable sophisticated pre-campaign planning and personalization and post-campaign results tracking and ad-spend optimization. These include offerings like custom shopper segments and look-alike audiences, as well as closed-loop measurement of media exposure, sales uplift, and ROAS, which retailers can sell separately from the media offerings with their RMN. <br /><br />Generally, retailers rely on third-party vendors and partners to activate the majority of these media and marketing solutions, but for some of them, they are increasingly creating in-house media teams who “cut out the middlemen” and sell to brand advertisers directly. I will cover this trend of in-housing certain media capabilities in Part 3 of this series. <br /><br />Traditionally, the store and its associated retail media have been considered “bottom-of-the-funnel” media (a.k.a. “shopper marketing” or “conversion media” or “promotional media”) – the last push marketers give their target consumers at the point of purchase to get them over the line and inspire or motivate them to make a purchase. Customarily, marketers have earmarked just a small portion of their marketing budgets to shopper marketing. <br /><br />The broad menu of advertising and promotional tools retailers offer today and the rise of digital media vehicles powered by their rich shopper data allow them to play a much bigger role than before in the media and marketing strategies funded by their CPG suppliers. Thanks to the broad audiences retail media can now reach via both onsite and offsite channels, retailers are increasingly contending for “top-of-the-funnel” media (a.k.a. “national” or “brand”) dollars, which comprise the vast majority of CPG marketing budgets. Marketers spend their national dollars to build brand equity, awareness, interest, and loyalty among their target consumers, and they have traditionally been allocated largely to mass media channels, such as broadcast, print, digital, and outdoor. <br /><br />I’ll cover the reasons behind retail media’s rising popularity in Part 2, but chief among them is the promise of retail becoming a true “mass medium” and attracting a meaningful share of the large brand budgets that today mostly go to TV, radio, print and online digital media. <br /><br />But will that promise ever be fulfilled? I’ll offer my thoughts on what needs to happen for retail media to live up to its potential in Part 4 of this series. </span><span></span><span><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhiZIYpEIMaXvV5SIc3s8u6HJmrgtzvVAtXEo2RA4cTHMDr_wokQo1DtZtR2E7w3lt3tGvX3x_sBs44mWW3Fr4GfyJ75Uh9h2itvJsp5pfWq5kh9SHn_MPKFj8FUo0tNqPYh6Eb19Rkhgse/s0/NEW-expertscoop-logo-square-FAV-rb-XS.png" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><span style="font-family: verdana;"><br /></span></div></div>Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com0New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-56367151086501558482021-03-24T22:32:00.004-04:002021-03-25T21:16:07.851-04:00An Inconvenient Truth: How Will Convenience Stores Survive the Conversion to Zero-Emission Vehicles<span style="font-family: verdana;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnG1_oFpkjeUffzz_qjFhXLNSyYsB-7hv55bDJdPI2LDQi8IpjL9E8ryITzvwKkOR7U56aAEjcR2xMJAgjV9DQ2IlPdsWkUxf25bobZ-bKRl3fmZp9qGXW3Q4Wx3sx8NRPfubGY2FmDrkK/s960/EVs.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="384" data-original-width="960" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnG1_oFpkjeUffzz_qjFhXLNSyYsB-7hv55bDJdPI2LDQi8IpjL9E8ryITzvwKkOR7U56aAEjcR2xMJAgjV9DQ2IlPdsWkUxf25bobZ-bKRl3fmZp9qGXW3Q4Wx3sx8NRPfubGY2FmDrkK/w640-h256/EVs.png" width="640" /></a></div><br />Let’s talk about electric vehicles … and convenience stores.<br /><br /></span><div><span style="font-family: verdana;">What do the two have to do with each other? Quite a bit, it turns out: the majority of convenience stores in the U.S. are either part of a larger gas station or offer fuel services themselves. If GM achieves its recently announced goal to convert its manufacturing output entirely to electric vehicles (EVs) by 2035, that will shake up and transform the convenience store industry in ways only few have begun to imagine.<br /><br /></span></div><div><span style="font-family: verdana;"><span><a name='more'></a></span>Earlier this year, <a href="https://media.gm.com/media/us/en/gm/home.detail.html/content/Pages/news/us/en/2021/jan/0128-carbon.html">General Motors put out an astounding statement</a>: the largest U.S. automaker plans to become carbon neutral in its global products and operations by 2040 and eliminate tailpipe emissions from new light-duty vehicles by 2035. In other words, 14 years from now, GM will only manufacture electric vehicles (EVs). <br /></span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Other automakers are sure to follow and commit to similarly ambitious carbon-neutrality targets. It seems conceivable that in less than two decades, most of us will be driving EVs and the resulting changes in consumer needs and behaviors will require many industries to rethink their strategic plans, business models, and capital investments.<br /><br /></span></div><div><span style="font-family: verdana;">Much has already been said about the impending disruptions and transformation of the national power grid, home electrical systems, and the oil and gas industry that the ascent of EVs will bring about. The impact of these changes on retail, especially convenience stores, is only just starting to be envisioned. <br /><br /></span></div><div><span style="font-family: verdana;">To be sure, major convenience chains, such as 7-Eleven, Love’s, Sheetz, or Casey’s General Store are all experimenting with EV charging technology and investing to reequip and realign their store designs. Much of this work primarily revolves around adding charging stations to their current operations, rather than rethinking how their customers’ behaviors and in-store experience will change in the age of EV dominance.<br /><br /></span></div><div><span style="font-family: verdana;">The GM announcement increases the pressure to move quickly from today’s go-slow, incremental changes, focused on improved charging accessibility, to aggressive and complete reinvention of the future purpose, operating model, and customer proposition of convenience stores.<br /><br /></span></div><div><span style="font-family: verdana;">To achieve that, industry leaders must reimagine the world and how consumers will behave once everyone is driving an EV. Will we need neighborhood gas stations when everyone will be able to charge their cars at home or at the office? When we take a long road trip, and we have to stop for at least 20-30 minutes to recharge, rather than the 5-minute refill, what should these road-side gas stations and rest-stop service areas look like, and what services should they offer? <br /><br /></span></div><div><span style="font-family: verdana;"><b>For highway convenience stores and gas stops</b>, the game will be one of reinventing the store format, products and services, and customer experience.<br /><br /></span></div><div><span style="font-family: verdana;">The fastest charging EV today is the Lucid Air – it can add 20 miles per minute of charging, and a “full tank” that can cover up to 300 miles can be reached in just 20 minutes. Most other established EVs today add 12-15 miles per minute.<br /><br /></span></div><div><span style="font-family: verdana;">Right now, taking two to five minutes to fill up your tank already feels like an eternity. In the future, it might take 10-20 minutes to add 200 miles with EVs. Has anyone stood at a pump for 10 minutes? How about when it is 15 degrees with a stiff wind, and you have to stop every two to three hours for a charge?<br /><br /></span></div><div><span style="font-family: verdana;">Convenience store operators must start thinking about how to engage their customers like never before. They will need to deploy new strategies and pursue new opportunities.<br /><br /></span></div><div><span style="font-family: verdana;">People are generally impatient and particularly when they are trying to get from point A to point B as quickly as possible, so the extra 10-15 minutes of charging time can be a major annoyance – or unlock great new opportunities for convenience stores to offer services that engage the customer, make that time as pleasant as possible for them, and motivate them to spend more.<br /><br /></span></div><div><span style="font-family: verdana;">What do people need or want or miss while on the road for many hours at a time? Perhaps convenience stores can offer stretching stations or mini-gyms – walking on a treadmill for 5-10 minutes can be a welcome option for someone who has been sitting in a car for hours. Pet care, kiddy gyms, or power-nap stations are also possibilities, and so are streaming entertainment pods or gaming stations. Roadside stores and food-service businesses can also offer more curbside ordering and delivery of food and beverages to the charging vehicle. <br /><br /></span></div><div><span style="font-family: verdana;">There is also the opportunity to adapt the in-store merchandising and customer experience to make use of the extra 10 minutes. Store displays can be digitally enhanced with videos, local content and merchandise, mementos, and memorabilia. Categories that rely on slightly longer dwell times than today’s convenient stores are designed for – such as personal care, vitamins and supplements, or prepared food stations – can also be incorporated in the layout of the roadside convenience store of the future.<br /><br /></span></div><div><span style="font-family: verdana;"><b>For the neighborhood gas station and convenience store</b>, the challenge will be one of survival, reimagining their core purpose, and redefining the business model. <br /><br /></span></div><div><span style="font-family: verdana;">If by 2035, most of their current customers are charging their EVs at home or at work, they will have no reason to stop at a local gas station or convenience store. Everyone involved – from the operator franchisee to the landowner to the franchise licensor – will have to rethink their business. How will they still attract consumers to their stores? What will the land use look like?<br /><br /></span></div><div><span style="font-family: verdana;">Operators will have to press licensors of how they plan to continue to support them and drive traffic to their locations. Licensors will have to decide how to evolve their franchise concepts and their marketing support to respond to the new reality of EVs and the fact that consumers will no longer need to stop at a neighborhood gas station. <br /><br /></span></div><div><span style="font-family: verdana;">What would compel consumers to continue to patronize a near-by gas station and its adjacent convenience store? Most likely, the establishment would have to offer more than just a charging cord – it would have to provide other services and help consumers accomplish multiple tasks during the visit.<br /><br /></span></div><div><span style="font-family: verdana;">Prepared food has been one of the answers convenience stores have leaned on – foodservice represents 23% of the industry’s revenue. But convenience operators will have to think beyond food – COVID-19 put a dent in these revenues, as people stopped coming in to buy snacks even when they did stop at a gas station. Plus, convenience stores will now be competing even more than before with small-footprint grocery stores, drug stores, and discount stores in the neighborhood.<br /><br /></span></div><div><span style="font-family: verdana;">One direction the concepts might take is to partner with quick-service restaurant (QSR) chains and incorporate more fast-food options for consumer. You could even imagine Starbucks and other coffee shops becoming a standard component of local EV charging stations and convenience chains. Another strategy is to offer a full menu of car service and maintenance options, including oil change, tire rotation, fluid level and tire pressure checks, and car wash and vacuum. Perhaps it will be back to the days of the full-service station, and maybe even adding more high-tech services, such as smartphone maintenance, accessories, and tech support.<br /><br /></span></div><div><span style="font-family: verdana;">Neighborhood gas stations and convenience stores are in a race to redefine the value they offer from their retail footprint by offering services that are as critical in their customers’ daily lives as refilling the gas tank is today. If they fail to do that, they are in danger of ceding this consumer traffic to other retailers, such as drug stores, QSR locations, or discount stores, who will eclipse the old gas station model by adding charging to their lots. <br /><br /></span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">The fast-moving conversion to zero-emission vehicles, will cause tremendous disruption and have far-reaching repercussions for convenience stores. But, if they respond quickly and creatively to the new customer needs and market opportunities, they could be able to successfully reshape value proposition and secure an attractive place in the retail ecosystem, which would also come with attractive new revenue streams and a stronger relationship with their target customers.<br /></span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEieXS7bjvrNbz8EUH67j6WjAp_6viKEekuloCXiVCu57xCT4aYnAfGTyRFUvIOUR7IrRYhAR8IOhAdq7QpYdp4SMi4A7c3tDDHzpfux_c0oGzm8SVd7IjMyc2Lh_R96QksUkYyF6oKfCH2-/s0/NEW-expertscoop-square-tile-iwm-XS.png" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div><br /></div>Jon Rubinhttp://www.blogger.com/profile/09859210362770619173noreply@blogger.com0Ridgefield, CT, USA41.284063499999988 -73.497541214.956249335082347 -108.6537912 67.611877664917628 -38.3412912tag:blogger.com,1999:blog-4046236588836115162.post-22733696356550892192021-02-09T20:29:00.003-05:002021-07-12T10:19:25.607-04:00In-Store Media and Merchandising: The Digital Renaissance Cometh<p></p><span style="font-family: verdana;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKxEdp_IWXECTRuPn3U1FXxNYBE3oHSe-xj8Jb9AKrSvZE0XCFpv1350ZBlWni6NsDBKjV_amopgslwoF_v04GVyxk-5j5mmgJSLt6yHct7o-KNnj03lOFUfv1sEUhDw94LteDQOrOuxqn/s1430/Barrows.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKxEdp_IWXECTRuPn3U1FXxNYBE3oHSe-xj8Jb9AKrSvZE0XCFpv1350ZBlWni6NsDBKjV_amopgslwoF_v04GVyxk-5j5mmgJSLt6yHct7o-KNnj03lOFUfv1sEUhDw94LteDQOrOuxqn/w640-h256/Barrows.png" /></a><br /><div style="text-align: center;"><span style="font-size: x-small;">Barrows "Connected Store" endcap units</span></div><div style="text-align: center;"><br /></div>Let's talk about digital in-store media.</span><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">More specifically, the future of engaging shoppers digitally inside physical stores to make their shopping experience smoother, more productive and delightful, while also seizing the opportunity to serve them advertising and promotional messages sponsored by brand manufacturers.</span><div><span><a name='more'></a></span><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">It was a big week for Walmart’s media business. The world’s top retailer <a href="https://corporate.walmart.com/newsroom/2021/01/28/walmart-announces-expanded-vision-and-new-name-for-its-media-business">rebranded Walmart Media Group to Walmart Connect</a>, expanding search and display media offerings on its owned digital properties and announcing a partnership with The Trading Desk to create a new DSP utilizing Walmart’s first-party shopper data to drive media performance outside of the retailer’s proprietary sites.<br /><br />A couple of days later, it <a href="https://corporate.walmart.com/newsroom/2021/02/04/walmart-connect-ramps-up-on-site-offerings-with-upcoming-launch-of-display-self-serve-platform-and-acquisition-of-thunder-advertising-technology">announced the acquisition of Thunder technology</a> and IP and the launch of a self-serve ad platform targeted at small and medium-sized advertisers.<br /><br />But the most notable move revealed in these announcements was Walmart’s focus on introducing innovative in-store media solutions and experiences.<br /><br />Top consumer-goods retailers investing in state-of-the-art digital media capabilities is nothing new – all major players, including Walmart, Target, Kroger, Albertsons, Walgreens have built formidable in-house media businesses powered by their unique access to consumers’ basket-level purchase data.<br /><br />But those investments have primarily focused on established digital media channels, such as online digital display ads, email, social, and mobile marketing. Pursuing high-scale digital engagement with customers in their brick-and-mortar stores had thus far fallen outside of the scope of in-house media teams, and had instead been left up to category managers, merchandisers, and third-party marketing vendors to figure out and activate.<br /><br />As has often been the case in the past, Walmart is blazing a new trail in the industry. Walmart’s specific focus on in-store digital media solutions is likely going to help move this relatively underdeveloped media channel forward and transform it into a mass medium that can rival the scale and relevance of all other traditional and digital mass media.<br /><br />The physical store has a unique role in the consumer shopping journey. It has always been considered the most important point at “the bottom of the marketing funnel” – the place where shoppers make the ultimate product and brand decision and convert from purchase intent to actual buying.<br /><br />But physical stores, especially those run by large food and drug chains, which attract massive numbers of shoppers multiple times per week, are increasingly recognized as a highly attractive “top of the funnel” media channel, where advertisers can reach millions of consumers to build brand awareness and generate interest, and do so more efficiently and productively than on other mass media.<br /><br />Given the broad spectrum of marketing objectives that advertisers can achieve inside the store, the digital in-store renaissance Walmart will usher in with its announcement will likely lead to the emergence of two distinct digital engagement models: a media model and a merchandising model.<br /><br />Future success of these business models will be driven not by their convergence, as has been attempted many times in the past two decades, but rather by their clear separation and delineation into two different propositions for both shoppers and advertisers.<br /><br /><b>In-Store DOOH<br /></b>Digital screens are proliferating in and around physical stores. Even at slow-to-digitize grocery stores and pharmacies, there are now screens in the parking lot, screens at the entrance, screens at checkout, digital menu boards, overhead screens throughout the store, even screens at the cooler doors in the frozen section and on benches outside the store.<br /><br />Supermarkets have experimented with TV screens for a long time – with only limited success. The most prominent example has been Walmart TV Network. It was first created in 1998 and then <a href="https://www.nytimes.com/2005/02/21/business/media/walmart-is-upgrading-its-vast-instore-television-network.html">relaunched in 2005</a> as a network of 42” high-definition LCD monitors across almost all its 2,600 locations. At the time, it was touted as the “5th largest TV network” in the United States.<br /><br />It was <a href="https://www.retailwire.com/discussion/walmart-introduces-smart-network/">relaunched again in 2008</a> as “Walmart Smart Network”, refocusing its content away from TV-like entertainment programming to offering useful shopping information interspersed with brand advertisements. In <a href="https://corporate.walmart.com/newsroom/2021/01/28/walmart-announces-expanded-vision-and-new-name-for-its-media-business">last week’s announcements</a>, Walmart once again flaunted the “150 million weekly visitors” to its stores and digital properties.<br /><br />Today, there are players, such as <a href="https://grocerytv.com/">Grocery TV</a>, <a href="https://adcorp360.com/supermarket-checkout-advertising/">Adcorp</a>, and Impax Media (<a href="https://www.velocitymsc.com/post/velocity-announces-acquisition-of-impax-media-inc-to-enhance-its-media-solutions-division">recently acquired</a> by <a href="https://www.velocitymsc.com/">Velocity</a>) who have attempted to create large networks of digital monitors across numerous grocery chains. But by and large, these networks have not lived up to the promise of becoming credible and compelling alternatives to traditional mass media or the large digital platforms where the lion’s share of advertiser media budgets is still allocated.<br /><br />The key to in-store media succeeding at scale is to embrace the digital out-of-home (DOOH) media model, and to make in-store screens – especially those that offer little additional utility to shoppers in the store – an integral part of the larger DOOH ecosystem.<br /><br />DOOH has been one of the fastest-growing digital media channels in the past few years. There are several major reasons for that, driven by both consumer behavior and technology innovation.<br /><br />For one, consumers’ attention is so fragmented across a multitude of screens, devices, and apps, that TV and online ads no longer offer sufficient and contextually relevant coverage for advertisers to reach and engage their target audiences at scale. So interconnected OOH screens – surrounding consumer audiences anywhere from roadside billboards to bus stops, gas pumps, elevators, and ATM machines, to mention a few – offer valuable incrementality to the reach and impressions of traditional mass media.<br /><br />DOOH has also benefited from the rise of mobile technology and Internet of Things (IoT) sensors that have allowed this medium to offer advertisers much richer and more deterministic measurement of its audience reach and engagement, thus convincing marketers to allocate more of their media budgets to DOOH vehicles. The rise of programmatic DOOH, powered by key players, such as <a href="https://vistarmedia.com/">Vistar Media</a>, has been another contributor to the success of this growing medium.<br /><br />With the right investments and partnerships that deliver scale and measurability, in-store DOOH could become a massive network of digitally connected screens and in-store touchpoints that will eventually be fully integrated into the high-volume, high-velocity digital media networks all major DSPs and media buyers rely on. It could unlock a vast new supply of addressable, measurable media audiences on par with TV networks and the top digital platforms that today capture the majority of advertisers’ media dollars.<br /><br /><b>Connected Merchandising<br /></b>Beyond deploying in-store screens as digital billboards that flash advertisements to the millions of consumers who shop at grocery stores every day, the truly exciting opportunity retailers like Walmart have is to utilize digital technologies to significantly enhance their customer’s shopping experience.<br /><br />Walmart TV was predicated on a pure media model that just aimed to attract millions of eyeballs to content that had little or nothing to do with what shoppers were doing in the store. When Walmart <a href="https://vistarmedia.com/">relaunched it as “Smart Network” in 2008</a>, the main idea was to reorient the screens away from playing TV programs and commercials to delivering more focused messages in core departments, such as grocery, health and beauty, and electronics, as well as directly advertising items featured on endcap displays.<br /><br />Digital tools – including in-store screens, sensors, and interactive devices – can help retailers create delightful customer experiences and run their stores more efficiently and sustainably.<br /><br />After all, the main purpose of the physical store, the reason consumers still pick themselves up and go to the grocery store, is the shopping experience that is so hard to replicate online. We go to physical stores to see and touch the real merchandise, discover and try new products, and get ideas and inspiration from the energy and atmosphere of beautifully merchandised, well-run stores.<br /><br />Merchandising is the heart and soul of retailing. It is no coincidence that category managers and merchandisers are the most influential and powerful players in retail organizations. Bringing the products, the brands, the shopping journey to life inside the store is the high calling of all retailers. To conjure the magic of brick-and-mortar retail, merchandising professionals turn to visual displays, product features, in-store events, sampling, and promotions.<br /><br />Digital tools – including in-store screens, sensors, and interactive devices – can unlock previously unimaginable possibilities both to create amazing customer experiences and to run the stores more smoothly, efficiently, and sustainably.<br /><br />These digitally enabled in-store solutions are less focused on the opportunity for mere eyeball impressions and are engineered entirely with the customer experience and the merchandiser’s job in mind. They focus on specific categories, touchpoints or use cases throughout the store, looking to unlock incremental value for shoppers, product manufacturers, and category managers.<br /><br />A great example of digitally enhanced in-store merchandising solutions is the suite of connected multimedia displays delivered by <a href="https://www.barrowsglobal.com/">Barrows</a>, a 30-year veteran of in-store visual design with offices around the world. The Barrows “Connected Store” merchandising displays, which include endcaps, freestanding units, and in-aisle hotspots, are engineered for scale and efficiency, but also custom-designed and built to deliver superior visuals and delightful shopping experiences.<br /><br />The digitally enabled units are built with a standardized shelving and hardware skeleton, which can be re-sleeved with custom-designed graphics and decorative fixtures for every brand campaign. The digital screens and proximity sensors offer dynamic, relevant content for shoppers, rich campaign analytics for brands, and real-time restocking and sales tracking capabilities for retailers.<br /><br />Another example of a digital in-store solution very much designed and engineered for a specific category and shopping use case is the digitized freezer doors activated by Chicago-based startup <a href="https://www.coolerscreens.com/">Cooler Screens</a>. Their innovative solution converts normally unexciting frozen and chilled aisles into a bright wall of attractive digital displays that not only showcase better the products inside the refrigerated unit, but offer dynamic pricing, promotions, consumer ratings, and engaging videos and animations. The units can sense whether stocks inside the refrigerators are running low or products are misplaced or improperly merchandised.<br /><br />With the right focus on customer experience and functionality, retailers have the opportunity to deploy an array of digitally enabled in-store display, merchandising, and shopper utility touchpoints – similar to those by barrows and Cooler Screens – that will be custom-designed for their stores and their brand, and will add tremendous value by creating visually delightful, digitally enhanced, highly engaging experiences, while also driving measurable sales lift and category growth.<br /><br /><br /></span><div><span style="font-family: verdana;">With the rise of digital in-store media and merchandising solutions, Walmart and all major consumer-goods retailers have the unique opportunity to not only reach some of the largest and most relevant audiences any media network could aspire for, but to also offer unrivalled value and delightful shopping experiences that foster meaningful long-term connections with their customers.<br /><br />The key is not to figure out how to blend media and merchandising into one digital vehicle, but rather to activate the two digital engagement models separately – one focused on reaching large audiences and delivering incremental impressions, and one aimed at making in-store shopping as pleasant, easy and fulfilling as possible.</span><br /></div></div></div></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgORfojKSLz1fTdpQb4t1PT97Hlgt3yU3VotEgpKeEVjwz4OGGM6Lt6f8SAXSFTCgIDZC17R6PMleCodYv9oLw7o5Q7-0GsUh_nC1S7s55Xqqw1nHuw4iKeQ-tEADWoeZ6-R8330Dchw40G/s0/NEW-expertscoop-square-tile-bhm-XS.png" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><span style="font-family: verdana;"><br /></span></div>Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com1New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-60301848576487849862020-10-25T17:22:00.001-04:002020-10-27T13:59:59.864-04:00Two-Way Street: Growing a Two-Sided Marketplace Through Supply and Demand Promotions<span style="font-family: verdana;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTyZ_8Rb5eDKJ_wvZrYutW5RDASbD0vqNMUGVNuvn3KSlEgtAX-3Rumn0AX0Pfn6CvOZUrRo7X1_rv2tTgd990D0hkTYo6TBT8-WRHbd16BfPBN9LgMt4_lnrzweKd983q7llgQ7_k8u2F/s960/Marketplace_bw.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="384" data-original-width="960" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTyZ_8Rb5eDKJ_wvZrYutW5RDASbD0vqNMUGVNuvn3KSlEgtAX-3Rumn0AX0Pfn6CvOZUrRo7X1_rv2tTgd990D0hkTYo6TBT8-WRHbd16BfPBN9LgMt4_lnrzweKd983q7llgQ7_k8u2F/w640-h256/Marketplace_bw.png" width="640" /></a></div><br />Let’s talk about two-sided marketplace promotions. <br /><br />More specifically, the crucial marketing tactic two-sided marketplace platforms, such as Uber or Doordash, deploy to drive engagement and growth by stimulating both demand and supply among their network participants. </span><div><span><a name='more'></a></span><span style="font-family: verdana;"><br />The last five years have given rise to the ‘aggregator platform’ business model, resulting in the meteoric growth of ‘two-sided marketplace’ companies, such as Uber or Airbnb or Doordash. These asset-lite network players go beyond the traditional Business-to-Business (B2B) and Business-to-Consumer (B2C) models – they create value by connecting fragmented suppliers and fragmented customers onto the same platform and facilitating a frictionless matching and transaction process between buyers and sellers. <br /><br />Traditional companies spend marketing dollars to acquire customers and design supply chains based on existing demand. Two-sided marketplaces, on the other hand, must market both to suppliers and customers, often needing to make trade-offs with regard to where they spend their promotions budgets. <br /><br />Let’s take Uber for example. On a $100 car ride, $80 goes to the driver and Uber keeps $20 as margin on average. However, depending on the specific market, Uber can choose to either reduce the price of the ride to the consumer or pay the driver extra. <br /><br />Here is an approach (see <b>Figure 1</b>) to how marketplaces can evaluate the trade-offs between investing marketing promo dollars in supply vs. demand-side incentives. <br /><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5kUg6oePHxs7jqPKSEbUDwvXUery7rAEilH1WANAX9QYzv9vwaAFZDthjLhwBzWdBg_M0qS6rDqhVQxKUyIsGXP3WgTF4Jm88I3PGhWLMf63uWwCRvOIVqxZw36oeO80WEbHy4a9k9vKd/s1500/Two-Sided+Marketplace+Flywheel.png" style="margin-left: 1em; margin-right: 1em;"><img alt="The 4-Step Optimization Cycle for Two-Sided Marketplace Promotions" border="0" data-original-height="850" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5kUg6oePHxs7jqPKSEbUDwvXUery7rAEilH1WANAX9QYzv9vwaAFZDthjLhwBzWdBg_M0qS6rDqhVQxKUyIsGXP3WgTF4Jm88I3PGhWLMf63uWwCRvOIVqxZw36oeO80WEbHy4a9k9vKd/w640-h362/Two-Sided+Marketplace+Flywheel.png" width="640" /></a></div></span></div><div><div style="text-align: center;"><span style="font-size: x-small;"><b style="font-family: verdana;">Figure 1</b><span style="font-family: verdana;">. The 4-Step Optimization Cycle for Two-Sided Marketplace Promotions </span></span></div><span style="font-family: verdana;"><div style="text-align: center;"><br /></div><b>1. Align on Investment Guardrails <br /></b><br />Since customer and supplier acquisition is central to the working of a two-sided marketplace, it is essential that core functional leaders align on the maximum spend the company is willing to commit to acquisition. Possible opportunity costs may come from Brand Development, Product Development, Research, and Investor Payouts. <br /><br /></span><div style="text-align: left;"><span style="font-family: verdana;">Companies in an earlier stage of growth tend to prioritize growth over margins and often spend more on promotions than larger, more established brands. <br /><br /><b>2. Assess Market Constraints <br /></b><br />Two-sided marketplaces are unique in having to manage market constraints dynamically, often in real time. A demand constraint suggests that there are insufficient customers for the existing supply. Signs of this include: underutilized supply, for example, drivers having large idle times between pick-ups. As a result, underutilized drivers may join another network or drop off the grid altogether, resulting in lost revenue potential. <br /><br />On the other hand, a supply constraint occurs when there is not enough supply to serve pent-up demand that exists. Signs of this could be: large incidence of customer requests going unfulfilled, or long wait times between ride order and pick-up. Underserved customers will abandon the platform altogether and likely switch to a competitor or a legacy player. <br /><br />The marketplace company needs to address the constraint in each market. Promotional dollars are likely better spent on incentivizing suppliers during a supply constraint, and to attract customers in times of a demand constraint. <br /><br /><b>3. Measure Price Sensitivity <br /></b><br />Once the target is decided, it is critical to assess how sensitive they are to price. Companies should A/B test multiple promotions and assess incremental revenue resulting from the promotion. <br /><br />An important consideration is that a supply-side promotions also must be evaluated against increase in net revenue. This is because the end goal of a supplier promotion, as with all demand-side promotions, is to increase customer revenues – in this case, by increasing supply. <br /><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2OZEfenvnez09ze2IdhXKFv97gW4-aNOrDLl5nKc-q2SDftGiUrH5p-fJTcW2xxqhmvsaidTeUfDanNQjt01RjldIWI-e8igD6pViQ4cpeoUaebvQb0DOqWk1oIMFy7v0LAccMUuaSBJ4/s1500/Marketplace+Scenario+A.png" style="margin-left: 1em; margin-right: 1em;"><img alt="Demand-side Promotion: Passengers Given Promotion to Increase Existing Driver Utilization" border="0" data-original-height="850" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2OZEfenvnez09ze2IdhXKFv97gW4-aNOrDLl5nKc-q2SDftGiUrH5p-fJTcW2xxqhmvsaidTeUfDanNQjt01RjldIWI-e8igD6pViQ4cpeoUaebvQb0DOqWk1oIMFy7v0LAccMUuaSBJ4/w640-h362/Marketplace+Scenario+A.png" width="640" /></a></div></span></div><div style="text-align: left;"><div style="text-align: center;"><span style="font-size: x-small;"><b style="font-family: verdana;">Figure 2</b><span style="font-family: verdana;">. Scenario A – Passengers Given Promotion to Increase Existing Driver Utilization </span></span></div><span style="font-family: verdana;"><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiylnS5h0uhkaiHaIXUHQ9oAD2mRMnHuEVoZYwR2xceHXxAx_e9xpfKAFqTPb6c-1CImdAr44G4GpnptuPlbQ3Kp2w_2a3XIzUT-ONwalUqP8prcA1bPnD44R2JojaGyLBp0U1b0uvu8X9u/s1500/Marketplace+Scenario+B.png" style="margin-left: 1em; margin-right: 1em;"><img alt="Supply-side Promotion: Drivers Given Promotion to Reduce Wait Time for Customers" border="0" data-original-height="850" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiylnS5h0uhkaiHaIXUHQ9oAD2mRMnHuEVoZYwR2xceHXxAx_e9xpfKAFqTPb6c-1CImdAr44G4GpnptuPlbQ3Kp2w_2a3XIzUT-ONwalUqP8prcA1bPnD44R2JojaGyLBp0U1b0uvu8X9u/w640-h362/Marketplace+Scenario+B.png" width="640" /></a></div></span></div><div style="text-align: left;"><div style="text-align: center;"><span style="font-size: x-small;"><b style="font-family: verdana;">Figure 3</b><span style="font-family: verdana;">. Scenario B – Drivers Given Promotion to Reduce Wait Time for Customers </span></span></div><span style="font-family: verdana;"><br /><b>4. Optimize Using Feedback from Acquisition </b><br /><br />Perhaps the most important step in the framework is to ensure lessons from the other three phases are studied and incorporated into future promotions. Areas of potential impact include:<br /></span><ul><li><span style="font-family: verdana;">People and process changes as a result of having to manage larger business scale or functional improvements,</span></li><li><span style="font-family: verdana;">Alignment on possible promotion and margin guardrails based on known demand side, supply side, and investor sensitivity,</span></li><li><span style="font-family: verdana;">Product features to automate constraint assessment and setting up flash promotions to bring in incremental revenue when needed.</span></li></ul><span style="font-family: verdana;"><br />Two-sided marketplaces are a powerful business model that offer strong value proposition by serving both supply-side providers and demand-side customer by connecting them onto a flexible and dynamic platform. To drive engagement and growth, they have to simultaneously be masterful B2C and B2B marketers, which requires them to perfect the 4-step optimization flywheel to strike the right balance between supplier and customer promotions that maximize marketplace revenues and platform user retention.</span></div></div><div style="text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><br /></a><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiP3Kh4c6niStRzUBYbaxSzXLDOU-OH70ryBomoynbT6FhXS-NWnG6jTitMKd_UAVyfdYTtsEXRrYEcXQUG_8EENmPS4CBc899gWuoeuyYqWZzArZowk8AscNlXbo2vnu8zkyVtIkkrMpwV/s0/NEW-expertscoop-square-tile-XS.png" /></a></div><br /><br /></div><br /><span style="font-family: verdana; font-size: x-small;"><br /></span></div>Hari Sripathihttp://www.blogger.com/profile/12453730931446139566noreply@blogger.com0New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-74353308950967731642020-09-10T12:40:00.042-04:002020-09-11T21:41:00.560-04:00The Talent Stack: Differentiating Between Values, Abilities and Skills When Evaluating People<div class="separator" style="clear: both; text-align: center;"><span style="font-family: verdana;"><img border="0" data-original-height="384" data-original-width="960" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_-coX_RU87i6L4DXL9KByHqhzvCr_0fxPVbv54xLhARCKm32Tv8cL62JUPJW6lQ0mxH_IPs4dlyVQ79ygrCheAVHT4yFy5fuWXFsuxNKSlR5kIMoDy7Fgc7cNj8mw90pW_ZQGYicqGZDt/w640-h256/Talent_bw.png" width="640" /></span></div>
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<span style="font-family: verdana;">Let’s talk
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<span style="font-family: verdana;">More
specifically, how to identify and assess people who are best suited to ‘click’
seamlessly with your corporate culture, deliver meaningful impact and results
effectively and quickly. <i>The Talent Stack </i>is a powerful framework that helps
focus your attention on the right people attributes and candidate qualifications, and in the right order of strategic priority.<o:p></o:p></span></div>
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<span style="font-family: verdana;">I was first
introduced to the concept of “<i>Values, Abilities and Skills</i>” by Ray Dalio
during my time at <span style="color: #0b5394;">Bridgewater</span>. One of his (now famous) “<i><a href="https://www.principles.com/">Principles</a></i>” was
that we should look at people as having these three very different <i>tiers</i>
of qualifications or attributes that should not be commingled together, with values
being most important and skills the least.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Over the years,
I made small adaptations and interpretations of my own, and used this framework
extensively both when recruiting people to join my teams and when evaluating whether
I am a good fit for a role or a company that was recruiting me. I called it
“<i>The Talent Stack</i>” (see <b>Figure 1</b>).</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-family: verdana;"><br /></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-family: verdana;">Just as we evaluate the “tech stack” of a company to
understand its technology capabilities at different levels – infrastructure,
applications, data & analytics – we should be using <i>The Talent Stack </i>to
evaluate a person’s capabilities at the values, abilities and skills levels to
determine the likelihood of culture fit and success in a given role.<o:p></o:p></span></div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody>
<tr><td style="text-align: center;"><span style="font-family: verdana;"><img border="0" data-original-height="853" data-original-width="1500" height="364" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp6VWPfCQcckujTQGVHAa08rXrc7K9aB3jYmeocP2kS5Xpn_Kov6nc6LX5Xy0WDE0z8hyphenhyphenyMVYJO4I0SNdwi2pDKn8JdCE2paDsg4q0DUqOdFDShhTQvn0KnEWoSyoIcPbfS_U1T0EydwJN/w640-h364/Talent+Stack.png" style="margin-left: auto; margin-right: auto;" width="640" /></span></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-family: verdana; font-size: xx-small;"><b>Figure 1</b>: The Talent Stack: A Framework for Evaluating People Strategically and Holistically </span></td></tr>
</tbody></table>
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<span style="font-family: verdana;">The fundamental
value of this framework and approach is the recognition that what you look for
in people comes in three “flavors” – and these three flavors of people attributes are very different from each other, hence should be looked at separately and
not lumped in one long list of “required qualifications.” <o:p></o:p></span></div>
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<span style="font-family: verdana;">Some of them, i.e.
values, are fundamental to culture fit and are hard to change or ‘develop’
through a training program. Others, i.e. abilities, are innate to a person’s
way of thinking or natural inclinations, and while they can be altered or
cultivated, that usually happens over a long time horizon. And yet others,
i.e. skills, are learned and developed through specific experiences and
educational programs that are much more predictable in terms of duration and
outcomes.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Let’s take a
deeper look at how values, abilities and skills are different by definition and
how to use <i>The Talent Stack </i>framework to evaluate both job candidates and
employment opportunities.<o:p></o:p></span></div>
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<b><span style="font-family: verdana;">Values<o:p></o:p></span></b></div>
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<span style="font-family: verdana;">There’s a reason why <i>values</i> are at the top of <i>The Talent Stack</i>. They are both the most important attribute people bring to an organization <i>and</i> they are very hard – virtually
impossible – to change or cultivate later in life.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Our values are
what makes us ‘tick’ – our deepest beliefs and emotional motivators. Values are
deeply personal and important to each of us, and they guide everything we do
and how we do it. They define who we are, who we want to be, and how we want to
live our lives. Most importantly, they guide all our choices and decisions.
They are the ultimate “<i>why</i>” underlying all our actions. When we talk about
‘character’, we’re really referring to the values a person espouses to and acts
by.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Our values are
shaped early in life by our parents, grandparents, teachers, mentors, and role
models (or the absence thereof). When our experiences – both personal and
professional – are in harmony with our values, we feel happy, excited,
motivated, optimistic, fulfilled. When there’s a conflict or mismatch of values
we feel the opposite.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Values are not
rational or premeditated – they are innate, spontaneous, emotional. We can’t
help but act on the impulses generated by our values. Which is why values are
nearly impossible to control, reform or develop beyond early childhood.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Values are most
commonly encapsulated by a single poignant word and often further elaborated by
a short descriptive sentence. Here are some examples:</span></div>
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<li><span style="font-family: verdana; text-indent: -0.25in;">Integrity – to be honest and forthright, to
represent a single version of the truth, and to speak one’s mind without
reservation or manipulation of the facts</span></li>
<li><span style="font-family: verdana;">Kindness – to feel and act with genuine care for
the wellbeing and feelings of others</span></li>
<li><span style="font-family: verdana; text-indent: -0.25in;">Positivity – to have an optimistic, can-do
attitude even in the face of adversity or challenges</span></li>
<li><span style="font-family: verdana; text-indent: -0.25in;">Excellence – to strive for and expect high
quality and the best possible results, and be unable to accept or tolerate
mediocrity</span></li></ul>
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<span style="font-family: verdana;">So how do we
use values systematically when evaluating talent? First, values are the most
important determinant of culture fit. To test for that, a company first has to
clearly define and articulate <i>its own</i> corporate values, as described in <a href="https://www.expertscoop.com/2020/06/strategy-checklist-1.html">our
previous blog on <i>The Strategy Checklist</i></a>. Then, the recruiting
process should include a formal evaluation and scoring of each candidate
against the corporate values. This should be done across all open roles and job
descriptions – it is a systematic way to address the question “What kind of
people do we want to hire?” throughout the recruiting cycle. Inversely, a
candidate can evaluate the company’s values against their own and decide
whether this is the kind of place they want to work at.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Values can also
be job-specific. In addition to the core corporate values, some positions may
have additional or more specific values requirements. For example, HR roles
will require an extra penchant for discretion and a predisposition to preserve
the privacy and confidentiality of others. Similarly, sales or business
development roles would require a natural desire, even hunger, for growth and
attainment of goals.<o:p></o:p></span></div>
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<b><span style="font-family: verdana;">Abilities <o:p></o:p></span></b></div>
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<span style="font-family: verdana;">After values, the
next tier of <i>The Talent Stack</i> in order of importance is a person’s natural
talents and cognitive inclinations, or <i>abilities</i>. They are important
because they point to what a person is capable of, what they could handle or
achieve, regardless of the context they are in or the role they are assigned. While our specific skills and experiences only speak narrowly to what we
have done in the past, abilities provide a peek into what we might be able to
accomplish in the future across a variety of tasks or situations.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Abilities are
based on how we are naturally wired, intellectually, emotionally and physically. Abilities
are not binary or absolute, but rather they are measured on a continuum and on
a relative basis. By and large, we all have the same set of abilities, such as
being able to communicate and socialize with others or being able to work with
numbers. But some people are a lot better at, or more naturally comfortable
with, these undertakings than others, so we say that they are a “people person” or a </span><span style="font-family: verdana;">“</span><span style="font-family: verdana;">good communicator” or a “numbers person”.</span><span style="font-family: verdana;"> </span></div>
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<span style="font-family: verdana;">Because
abilities derive from a person’s innate talents and inclinations, they too are
not easy to acquire or develop quickly or in a predictable fashion. But unlike
values, abilities can be shaped and cultivated later in life, though it normally takes effort and discipline. For example, it is not impossible for a naturally
shy, introverted person to acquire the ability to communicate with others in an
engaging, even captivating, ways. But that evolution would only happen through a conscious effort </span><span style="font-family: verdana;">on the part of that person</span><span style="font-family: verdana;">, and require determination and perseverance in the face of challenges and
failures.</span></div>
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<span style="font-family: verdana;">There are many ways
to define and categorize abilities, based on what companies are seeking for a
particular role or objective they need to achieve. One popular standardized
framework for assessing general abilities is the <a href="https://www.myersbriggs.org/my-mbti-personality-type/mbti-basics/">Myers-Briggs Type Indicator (or MBTI) assessment</a>. It breaks down commonly sought-after professional abilities
into four dimensions:</span></div>
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<ul>
<li><span style="text-indent: -0.25in;"><span style="font-family: verdana;">Extraversion (E) vs. Introversion (I) – are you
more comfortable interacting with the outer world and other people or do you
prefer to operate in your own inner world,</span></span></li>
<li><span style="text-indent: -0.25in;"><span style="font-family: verdana;">Sensing (S) vs. Intuition (N) – do you focus on
the specifics and details of what you observe or are you more inclined to
analyze, conceptualize and add meaning to what you see,</span></span></li>
<li><span style="text-indent: -0.25in;"><span style="font-family: verdana;">Thinking (T) vs. Feeling (F) – do you rely on
logic, facts, and objective factors (i.e., using your brain’s prefrontal
cortex) when you make assessments and decisions or are you more likely to involve
emotions, empathy, and subjective circumstances (i.e., using your amygdala),</span></span></li>
<li><span style="text-indent: -0.25in;"><span style="font-family: verdana;">Judging (J) vs. Perceiving (P) – are you more
prone to make quicker decisions and bring closure and clarity or do you tend to
ponder, revisit, and stay open to additional information or input from others.</span></span></li></ul>
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<span style="font-family: verdana;">The MBTI is a great tool to systematize the evaluation of a broad range of abilities, but its
four dimensions do not cover every human trait you may need to evaluate. For
example, it doesn’t test for things like artistic creativity or quantitative aptitude
or propensity to learn or adapt. So recruiters need to rely on a variety of tests
and tools, as well as their own definitions and assessments of the specific
abilities they are searching for.<o:p></o:p></span></div>
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<span style="font-family: verdana;">While values
are an indicator of ‘fit’ especially with a company’s culture, abilities are an
indicator of ‘likelihood of success’ at particular types of jobs or activities.
For example, if someone is a natural outgoing communicator, they are likely to
have more success with a sales, prospecting or business development job. If
someone is naturally inclined to think conceptually, see patterns and
frameworks in everything they observe, they are likely to have more success at
an analytical or innovation role than someone who is more inclined to focus on
the particulars and details of the tasks.<o:p></o:p></span></div>
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<b><span style="font-family: verdana;">Skills<o:p></o:p></span></b></div>
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<span style="font-family: verdana;">Much of the
focus of recruiting processes is currently centered on specific past experiences,
certifications, and skillsets. Too much, in my opinion. The reason skills are at
the bottom of <i>The Talent Stack </i>is because they are the most undifferentiated
attributes of a candidate and offer only limited predictive benefit as to a
person’s fit with the organization or their likelihood of success in any role.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Skills are
acquired either through education or with experience, and as a result, are
commoditized – anyone can pursue a degree, obtain a certification, or have
experience in a particular industry. Consequently, two candidates may have gone
to the same MBA program, passed the same CPA test, and held identical positions at a
management consultancy or an accounting firm, but would potentially be very
different in their values and abilities, and therefore differ vastly in their organizational fit
and prospects for success in a new role. <o:p></o:p></span></div>
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<span style="font-family: verdana;">Skills can also
be developed a lot more </span><span style="font-family: verdana;">‘e</span><span style="font-family: verdana;">asily</span><span style="font-family: verdana;">’</span><span style="font-family: verdana;"> and predictably compared to abilities or values.
For example, a law degree takes 3-4 years and a certain amount of investment in
effort and expenses, but at the end of that, securing the credentials is all
but guaranteed. Similarly, acquiring advanced skills in, say, Excel or
PowerPoint or Python, or even learning a foreign language, is a relatively
straightforward process – there are many courses and learning tools to gain the
desired level of proficiency.</span></div>
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<span style="font-family: verdana;">Despite the
relatively low level of insight they provide, skills have a rightful place in
the recruiting process. First, having the requisite education, certifications,
or experience is sometimes ‘nonnegotiable’ for certain roles, especially more technical
or junior ones, where the focus is more on completing tasks and following procedures than on exercising judgment, being creative, or interacting effectively
with people. <o:p></o:p></span></div>
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<span style="font-family: verdana;">More
importantly, because they are commoditized, skills can serve as a heuristic for
inferring abilities and even values. A person who has successfully completed a
4-year law degree is likely to be a hard worker, highly intelligent, and a
believer in the rule of law. A candidate who has worked at a top management
consulting firm can be expected to have strong conceptual and problem-solving
abilities, excel at quantitative analytics, and be a polished presenter and
communicator.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-family: verdana;"><br /></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-family: verdana;">In that sense, skills provide a shortcut for recruiters to
uncover candidates with the right abilities and values. The key, however, is to avoid being mechanically over-reliant on skills and to leave room for the process
to discover strong candidates with the necessary values and abilities, even if they lack some of the desirable skills or experiences.<o:p></o:p></span></div>
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<span style="font-family: verdana;">In the end, it’s
not whether values and abilities are more important than skills or whether we
should no longer screen for skills (the way many colleges no longer screen on
the basis standardized test scores). Values, abilities, and skills all contribute
important elements to painting the full picture of a candidate and should be
used appropriately in concert with one another.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-family: verdana;"><br /></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-family: verdana;">What’s important is to recognize that there is a
clear hierarchy, whereby, especially for more strategic or senior roles, values
are more important than abilities and abilities are a lot more important
than skills – and to engineer a recruiting process that reflects that
hierarchy.<o:p></o:p></span></div>
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<span style="font-family: verdana;">Getting the
values fit wrong is much more costly and damaging to a company than recruiting a
person who lacks one or two of the technical skills needed for a role. And so
is hiring a technically or experientially skilled person who ultimately lacks the
requisite abilities and qualities for success in the role.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-family: verdana;"><br /></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span style="font-family: verdana;"><i>The Talent Stack
</i>framework is a handy tool to create the appropriate tiers of people competencies
a company is looking for and to devise a systematic and as-objective-as-possible
process to evaluate candidates across the full spectrum of personal qualities
required for success.</span></div>
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<o:p><span style="font-family: verdana;"></span></o:p></div>
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Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com0New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-18620382340096177912020-08-09T18:01:00.022-04:002021-06-19T21:15:13.067-04:00Settling for Less: The Challenges and Opportunities of Manufacturer Coupon Clearing<span style="font-family: verdana;"><a href="https://www.blogger.com/u/1/#"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjr_7rf8mj2nRb4z6wzk9r9fAFa8BZ0pJiX7eL2aO2K1uEJvgYYwwxqXlfTiVdle-WgKmBV40GNLeTCTDo4dnhbBvx-JISFcn7TY7_9lMQ5ExYRWLAwzZgHLJlSvit4Oc310BRbHPefE2Ur/w640-h256/Coupon+Clearing.png" /></a><br /> <br /> Let’s talk about coupon clearing. <br /> <br /> More specifically, the last stage of the <a href="https://www.expertscoop.com/2020/07/life-of-a-coupon.html">Life of a Coupon</a> process that delivers the processing of the coupon and the settlement of face-value funds between the manufacturer who issued the coupon and the retailer who accepted it. <br /> <br /> A <a href="https://investors.quotient.com/press-releases/press-release-details/2020/Quotient-Partners-With-Mandlik--Rhodes-to-Provide-Cost-Savings-and-Transparency-to-CPGs-and-Retailers-Through-New-Digital-and-Paper-Clearing-Solution/default.aspx">recently announced partnership between Quotient Technology and Mandlik & Rhodes</a>, a smaller coupon clearing house, promises to shake up the duopoly Inmar Intelligence and NCH Marketing Services have enjoyed for decades, and to provide better services and lower costs for CPGs. Will that come to pass? We’ll see. But to really understand what’s possible and what it would take to disrupt the coupon clearing industry, let’s take several steps back for a brief overview of the business of issuing, processing and clearing of manufacturer coupons. <br /><br /><a name='more'></a>Clearing is a key step of <a href="https://www.expertscoop.com/2020/07/life-of-a-coupon.html">the coupon value chain, which we introduced in our previous blog</a>. It’s invisible to the coupon-loving consumers, yet critical to providing a stable, predictable, and scalable industry infrastructure for manufacturer coupons. <br /><br /> As a former member of the <a href="https://couponpros.org/">ACP (Association of Coupon Professionals)</a>, I had the chance to observe coupon processing and clearing from the inside. It’s a fascinating business and while you may be chuckling over the fact that there are enough people to form a trade group for coupon processing and clearing, I can assure you that this is a massive, entrenched and complex industry that lives off the “7 cents handling” you read about in the legal copy of your typical manufacturer coupon. <br /><br /> Manufacturer coupons are a form of brand currency that is issued by consumer packaged goods (CPG) companies to achieve a variety of brand objectives, such as encouraging new product trial or reengaging lapsed customers. These coupons are redeemable at any retailer that accepts manufacturer coupons and typically carry a face value for a fixed amount off the product price. <br /><br /> There are also coupons for “free product”, “buy one get one” (BOGO), and a variety of other consumer value propositions. They are known as “hard-to-handle” coupons and must ultimately be converted to a nominal dollar value that the retailer can subtract from the subtotal amount of the consumer’s shopping basket, for which they will eventually get reimbursed by the CPG that issued the coupon. <br /><br /> Yes, you heard that right, the retailer fronts the payment to the shopper and then obtains payment at a later date from manufacturers. Hence the “7-cent handling fee”. <br /><br /> And the scale? Well, with 267 billion coupons issued in 2019, according to the <a href="https://www.inmar-insights.com/mystore#/productDetails/productId/01t2A000005ZqhaQAC">2019 Inmar Promotions Industry Analysis</a>, at an average face value of $1.55, the gross value of coupons issued was $387 billion. Granted, only a fraction of all coupons get redeemed – Inmar data shows, consumers redeemed 1.74 billion coupons in 2019. But that’s still over $2.5 billion in coupon face value being exchanged among CPGs, consumers and retailers, yet little information is captured or provided at the basket level about what actually happens at checkout. <br /><br /> And I’m not even talking about advanced data analytics that track the consumer behaviors over time by associating their identity with their current and past purchase data. Even basic data, such as whether the product, for which the coupon was issued is actually in the shopping basket, or whether the coupon is still valid, are not captured or checked in any systematic way. <br /><br /> Let’s take a closer look at what is in place today when a coupon is issued and what is actually happening when a customer presents it for redemption at checkout. <br /> <br /> The bulk of (paper) manufacturer coupons are still issued through newspapers and shared mail vehicles, and they arrive at homes ready to be used at any store that accepts coupons. No walled gardens, no store account or membership needed – these are truly omnichannel offers that allow shoppers to pick their preferred retailer without losing the savings opportunity or having to plan where they shop or juggle multiple store loyalty cards. <br /><br /> Paper manufacturer coupons have several key elements printed on them: a face value or offer description, a usage restriction or purchase requirement, an expiration date, legal copy, and a machine-readable linear barcode, formerly called a UPC-A, but since replaced by a more data-rich two-dimensional databar, known as a GS-1. <br /><br /> When a consumer checks out, the coupon is scanned and the GS-1 code provides the retailer’s POS system with the basic instructions needed for redemption – no cashier intervention needed in this process. The GS-1 contains a “manufacturer code” that tells the POS which manufacturer has issued the coupon (e.g., Procter & Gamble, General Mills, Johnson & Johnson). It also tells the POS which family of products (e.g., Tide family, Big G cereals) falls within the restrictions of the coupon – this is known as the “family code”. Finally, it communicates the face value of the coupon to the POS so it can deduct that amount from the customer’s subtotal, if products that match the family code are present in the basket. <br /> <br /> All the coupons redeemed by customers are physically placed in the cash register drawer, collected daily, stuffed in plastic bags [yep!], and shipped off to the retailer’s clearing house (or more specifically, one of its processing centers in Mexico), where they are counted by hand [you heard that right!] and then sent on to the CPG manufacturer’s clearing house for verification and payment of the aggregate face value plus handling fees back to the retailer. <br /><br /> This system, as established and reliable as it is, is not without some serious problems: <br /><br /></span><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><span style="font-family: verdana;"><b>No Product Matching<br /></b></span><span style="font-family: verdana;">One such problem is that a meaningful number of retailers do not support family code listings within their POS systems, so they only check for manufacturer code matches. This means that a coupon could be good only for Kellogg’s Corn Flakes, but if the customer has Rice Krispies in the basket, the coupon would still clear when family code is not supported and manufacturer code is all the POS checks for. Obviously, not an outcome either the Corn Flakes or Rice Krispies brand managers intended or budgeted for.<br /> </span><span style="font-family: verdana;"><br /></span><span style="font-family: verdana;"><b>No Expiration Check<br /></b></span><span style="font-family: verdana;">Another major gap in the redemption process – expiration dates. Retailer POS systems do not check for the validity or expiration date on paper coupons. That task is left to the cashier, who generally is focused (and measured) on the speed of the checkout process, and therefore has little incentive to slow down and check for expired coupons. Real-time expiration checks, table stakes for your debit or credit card transactions, just do not exist for coupons. The result is that a meaningful number of coupons are redeemed past the intended end date of the promotional campaign set by the CPG brand manager. Imagine if retailers accepted expired credit cards…</span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><span style="font-family: verdana;"> </span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><span style="font-family: verdana;"><b>No Transaction Trail<br /></b></span><span style="font-family: verdana;">Finally, once the checkout process concludes and the coupon is placed in the cashier’s drawer, it is completely dissociated from the purchase transaction that redeemed it. No digital trail links the coupon with the consumer or the transaction – it’s a black box from checkout through processing. The process in that last phase is managed by a series of agents who simply authenticate that the coupons are real and were redeemed at a particular retailer. General statistics can point out anomalies, such as extraordinary amounts of redemptions or redemptions happening outside of the geographies where the coupon was intended for, but a one-to-one match of coupon to product – let alone coupon to consumer – does not happen at-scale, or in many cases, at all.<br /> </span><span style="font-family: verdana;"><br /></span></blockquote><span style="font-family: verdana;"><span>The industry relies on what’s essentially an honor system that uses technology from the 1950’s to manage billions of dollars in remittances to retailers from CPG’s. If it seems antiquated, in the age of cloud computing and high-speed broadband, to rely on such a clunky analog, manual system to manage the validation, processing, clearing and remittance of so much money – well, it is!</span><br /><span> <br /> So what can be done to improve things; what’s possible? And what’s preventing the industry from taking these steps toward progress? <br /> <br /> The GS-1 databar has many additional features and functionalities that are “optional fields”, and if used properly, would significantly tighten up the transaction rules and validation processes at checkout. But none of this granular checkout information is within the direct or real-time purview of the clearing house or the CPG – it is all dependent on the retailer and their POS vendor to make the changes necessary to capture and utilize this additional information in real time. <br /> <br /> The industry has tried to update with the formation of <a href="https://www.thecouponbureau.org/">The Coupon Bureau</a>, which among other initiatives, attempts to institute a real-time call to a universal “positive/negative file” in the cloud to check the validity of an offer. <br /> <br /> But there are powerful and persistent forces in the industry that still stand in the way of these process improvements. <br /> <br /></span></span><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><span style="font-family: verdana;"><b>Retailer (Dis)Incentives<br /></b></span><span style="font-family: verdana;">First and foremost, it’s the retailer. Implementing the additional features of the GS-1 databar, or venturing further into more advanced features, such as controlling for multiple redemptions of the same coupon by the same customer (referred to as “coupon stacking prevention”), require substantial changes to the retailer’s POS and transaction systems. These end up being complex and lengthy IT integration projects that also carry the possibility of slowing down or disrupting the vast volume of daily transactions these systems process. This is the kind of risk to revenues and customer experience retailers are very reluctant to take, even in the name of process efficiencies, better data, and overall advancement.</span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">In addition, the current loose, archaic system is actually a source of “alternative revenues” for retailers. At 7 cents per coupon, with 1.74 billion coupons redeemed per year, that’s more than $120 million in handling fees across all retailers who accept and process manufacturer coupons. The incentive to disrupt the clunky existing system and jeopardize this significant and highly profitable revenue stream is just not there for most retailers.</span></p></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><span style="font-family: verdana;"><br /></span><span style="font-family: verdana;"><b>POS Provider Inertia<br /></b></span><span style="font-family: verdana;">Leading POS operating system providers, like Toshiba Global Commerce Solutions and NCR, command the lion’s share of the installed base of checkout terminals across the top retail chains – including food, drug, dollar, mass, and discount club classes of trade – where the bulk of CPG products are sold. With only a handful of POS companies handling virtually all brick-and-mortar retail transactions involving the purchase of any CPG product, these companies are in a great position to be innovators and aggregators who create the kind of data connectivity across retailers that has long eluded the fragmented U.S. grocery landscape.</span><span style="font-family: verdana;"><br /></span><span style="font-family: verdana;"></span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">POS providers could be creating pre-integrated coupon processing apps on their platforms and making them available for retailers to switch on with their next operating system release. They could be collaborating with the CPG manufacturers who issue the coupons, the coupon distributors who get them in the hands of consumers, and with clearing houses who handle the post-redemption validation and settlement process. They could be at the center of a universal digital network that recognizes coupons – both paper and electronic – across retailers, validates them in real time, and provides instant redemption data to CPGs, retailers, clearing providers and the Coupon Bureau. And they could be financing all this innovation and disruption by tapping into the significant amounts of marketing dollars CPGs expend annually to activate coupon campaigns.</span></p></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><span style="font-family: verdana;">But thus far, they haven’t – not in any meaningful way. There are some signs of attempts – Toshiba’s TCx Elevate platform promises to be the kind of open ecosystem that allows third-party value-added apps to integrate seamlessly and be made available to retailers in a near-frictionless way. But retailer adoption is still very low – probably because of the price tag the new platform carries.</span><span style="font-family: verdana;"><br /></span><span style="font-family: verdana;"></span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">Most importantly, POS providers are still stuck in their legacy business model – making money by charging retailers (the old “time and materials” way) for every upgrade, every integration and every little change made to their POS system. There’s an adage among grocery retail CTOs that even the slightest change they request of Toshiba or NCR to their POS systems ends up “taking a year and costing a million dollars.” And that, unfortunately, discourages retailers from investing in the upgrade of their systems and perpetuates the lack of innovation and data connectivity in the industry.</span></p></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><span style="font-family: verdana;"><br /></span><span style="font-family: verdana;"><b>CPG Manufacturer Complacency<br /> </b></span><span style="font-family: verdana;">Manufacturers have the most to gain from an upgraded, more data-rich and more interconnected system for processing coupons. And they, with their branding and promotional budgets, are the ones who ultimately pay for everything that happens in the media and marketing services industry. They finance every marketing campaign, regardless of whether it’s activated by an agency, by a specialized marketing provider (such as a coupon publisher or a retail broker), or by the retailer’s own marketing team. They should have a lot more say in how their money is spent and what they get back in the way of results, information and transparency.</span><span style="font-family: verdana;"><br /></span><span style="font-family: verdana;"></span></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><span style="font-family: verdana;">A number of the large CPG manufacturers are trying to do something about it by supporting the Coupon Bureau and other industrywide initiatives aimed at creating more transparency and traceability of paper coupon redemptions. But, by and large, the CPG community has not yet been effective in getting retailers and POS vendors to do their critical part to drive the necessary change.</span></p></blockquote><span style="font-family: verdana;"><br /> So where does coupon clearing go from here? My point of view on this is that manufacturer coupons should be elevated to the level of currency and treated as such. If existing technologies and practices, most importantly real-time validation, used in the credit and debit card industry were applied to coupons, that would go a long way. <br /> <br /> Brands should utilize a single industrywide coupon registry, and retailers should access that in real time and follow the entire set of rules incorporated into the GS-1 databar. This means checking for expiration, checking for and adhering to family code rules, etc. And, yes, it means rejecting some coupons at checkout despite the potential friction that would create between shoppers and cashiers. Cashiers have no problem telling a shopper that their credit or debit card was rejected, why should that not apply to coupons? <br /> <br /> Going a step further and leveraging even more advanced technologies, such as blockchain, holds the promise of creating full traceability and an immutable central ledger of all coupon transactions – from issuance to distribution to clipping to redemption to clearing and settlement. <br /> <br /> To get there, some things need to change – the key industry players will all need to do more than they do today. <br /> <br /> Rather than looking to force all coupons to be activated onto their respective closed, proprietary loyalty networks, retailers should embrace the consumer value of universal coupons that can be redeemed anywhere, implement the required system upgrades, and champion the creation of multi-retailer digital networks for activating, redeeming and clearing manufacturer coupons. <br /><br /> POS providers will need to change their mindset and business model to build on their unique positioning and become platforms for innovation and aggregation – a highly attractive strategic opportunity they are currently failing to seize. <br /><br /> And CPGs will need to use the power of their marketing budgets and lean more heavily on retailers to invest in the systems and processes that prevent fraud and mis-redemption and provide the transparency and accountability they need to continue to invest in manufacturer coupons, and allow consumers to continue to reap the benefits of this effective, proven marketing vehicle. <br /> <br /><div style="text-align: center;"><a href="https://www.expertscoop.com/"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQdblqxpJ2hI4mFGoWGjUjcDngHstuHU_yhrnTgLlVkHTv1SAu8c-GYhWjoX6lej0tnfFANB75SyDN-KVKAtWR3RKzcham2Hm2vuFFMozrG0mS4Lsab3S2ZsGGkKgXTapRtiz06zX5FWC4/s0/expertscoop-logo-square-FAV-XS.png" /></a> </div> </span>Anonymousnoreply@blogger.com0Fairfield, CT, USA41.1408363 -73.261261512.830602463821151 -108.4175115 69.451070136178842 -38.1050115tag:blogger.com,1999:blog-4046236588836115162.post-65128878076365286372020-07-11T15:33:00.008-04:002020-09-10T12:53:14.921-04:00Life of a Coupon: The Industry Value Chain That Powers Manufacturer Coupons<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<div class="separator" style="clear: both; line-height: 1.15; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiPVlW9-Fg7XOh2RGWvpynMfVccek7s_WL3dkM9Fi2OdvqUupj8BtOJF8-xsAFYBmzTZ2EBOOaA51hTc-Ws9pgZb_2ztrAqIiasLSWHptw6MrHmVROMkI7DQDgK1zbqpUjXUhOztHwNJoYd/s950/Coupons_bw.png" style="line-height: 1.15; margin-left: 1em; margin-right: 1em;"><span style="font-family: verdana; font-size: x-small;"><img border="0" data-original-height="379" data-original-width="950" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiPVlW9-Fg7XOh2RGWvpynMfVccek7s_WL3dkM9Fi2OdvqUupj8BtOJF8-xsAFYBmzTZ2EBOOaA51hTc-Ws9pgZb_2ztrAqIiasLSWHptw6MrHmVROMkI7DQDgK1zbqpUjXUhOztHwNJoYd/w640-h256/Coupons_bw.png" width="640" /></span></a></div><font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
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<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">Let’s talk about coupons.<o:p></o:p></font></span></div>
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<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">More specifically, the full value chain of activities and industry
players that constitutes the ‘<i style="line-height: 1.15;">Life of a Coupon</i>’ – from the CPG
manufacturer to the consumer to the retailer’s checkout register and back to
the manufacturer.<o:p></o:p></font></span></div>
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<a name='more'></a><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">A ‘<i style="line-height: 1.15;">manufacturer coupon</i>’ is a particular breed of consumer
discount that has some very real and well-established benefits not just for
consumers, but also for CPG marketers and FMCG retailers. Consumers can reap
meaningful savings and have the freedom to use the coupon at any retailer of
their choosing. CPG brands are able to engage and reward their target consumers
independently of any retailer’s influence and agenda, while also motivating a
broad set of retailers to restock additional cases of their products ahead of the
surge in demand. And retailers benefit from the increased traffic and product
sales coupons drive, which are often paired with ‘trade discounts’ that reduce
the cost of goods to the retailer. The scale of this popular marketing tactic
is considerable – according to the <a href="https://www.inmar-insights.com/mystore#/productDetails/productId/01t2A000005ZqhaQAC">2018 <font color="#3367d6">Inmar</font> Promotions Industry Analysis</a>, 267
billion coupons were issued and distributed in the U.S. that year, and 1.74
billion of those were redeemed by customers.<o:p></o:p></font></span></div>
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<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">These benefits are made possible by a market structure and value chain
of agreements and services that have existed for decades, and have thus
instilled trust and predictability among everyone involved – consumers,
retailers, and manufacturers. <o:p></o:p></font></span></div>
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<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">There are five distinct stages in the Life of a Coupon (see Figure 1),
each enabled by an infrastructure of industry players, standards and agreements
that make the well-established system work. All coupons, both electronic and
analog, go through the same five stages, but <span style="line-height: 1.15;"><a href="https://www.expertscoop.com/2020/05/paper-vs-digital-coupons.html">there are some notable differences between how paper and digital coupons function</a></span>, which result in
the respective advantages and limitations of each format.<o:p></o:p></font></span></div>
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<span style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><div class="separator" style="clear: both; font-size: small; font-weight: bold; line-height: 1.15; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8hI6RZ_nKZbv-BdfLQSdQG2Yl7be0UQEeI_Vr8YzTev1W-pSDecFrEHxuL8JIZ5a4If3GpAby1lwMY1qrx9pfeXXzq4RDkgwnPg2jbyVWi8TUC10s_7vR280L3paDBCAuUzPJixrM9Ilx/s1500/Life+of+a+Coupon.png" style="line-height: 1.15; margin-left: 1em; margin-right: 1em;"><img alt="Life of a Coupon – the Value Chain that Powers the Massive Volume of Manufacturer Coupons" border="0" data-original-height="849" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8hI6RZ_nKZbv-BdfLQSdQG2Yl7be0UQEeI_Vr8YzTev1W-pSDecFrEHxuL8JIZ5a4If3GpAby1lwMY1qrx9pfeXXzq4RDkgwnPg2jbyVWi8TUC10s_7vR280L3paDBCAuUzPJixrM9Ilx/w640-h362/Life+of+a+Coupon.png" title="Life of a Coupon – the Value Chain that Powers the Massive Volume of Manufacturer Coupons" width="640" /></a></div><font size="1" style="line-height: 1.15;"><div style="line-height: 1.15; text-align: center;"><b style="font-weight: bold; line-height: 1.15;"><font style="line-height: 1.15;">Figure 1.</font></b><font style="line-height: 1.15;"> Life of a Coupon – the Value Chain that Powers the
Massive Volume of Manufacturer Coupons</font></div></font></span></font></span></div>
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<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">1. Setup<o:p></o:p></font></span></b></div>
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<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">Coupons are born at marketing headquarters of major CPG brands and play
a variety of roles in achieving the brand manager’s business objectives. These include
supporting new product introductions, generating new customer trial, driving
brand loyalty through pantry loading, and recovering lapsed buyers.<o:p></o:p></font></span></div>
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<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">As CPG marketers design their promotional campaigns, they determine the
appropriate face value of the coupon, the duration of its validity, the product
purchase requirements, and the scope of the campaign (national vs. regional vs.
retailer-specific). They generate the creative for the coupon campaign, which
includes both the equity message (where applicable) and the coupon artwork and determine the
method of distribution. They adapt the creative for different coupon
formats, e.g. paper FSI, <font color="#3367d6">Catalina</font> coupon, digital coupon, instant redeemable
coupon (IRC), etc. (see below).<o:p></o:p></font></span></div>
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<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">To get a coupon ready for marketplace consumption, the brand team then obtains
from their clearing house a valid GS-1 offer code, which has all the attributes
necessary for the coupon to be machine-readable by the point-of-sale (POS)
system at checkout. These include manufacturer code, brand family and face
value. Then, they book a ‘drop date’ and media rates with their distribution
providers, and if the campaign is run on a ‘category exclusivity’ basis, they secure
all the relevant categories, so competitors’ coupons in the same product
category don’t get published alongside this campaign. Finally, the CPG team delivers
the print artwork or digital assets, including the correctly configured GS-1
databar, to the coupon distribution vendor(s) who will publish the coupons per
the contracted arrangements.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">2. Distribution<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">Once the coupon is designed, assigned a GS-1 code, and setup in the distribution
vendors’ systems, it’s time to get it into the hands of as many target
consumers as possible. One big decision is “<span style="line-height: 1.15;"><a href="https://www.expertscoop.com/2020/05/paper-vs-digital-coupons.html">paper vs. digital</a></span>” – or how
much of the coupon’s circulation to allocate to analog (or paper) modes of
distribution and how much to distribute electronically via digital channels. Another
decision is what <i style="line-height: 1.15;">types</i> of coupons to activate as part of the campaign.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">While coupon formats and distribution vehicles continue to proliferate,
there are four primary types of coupons to choose from:</font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
</div>
<ul style="line-height: 1.15;">
<li style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;"><b style="line-height: 1.15; text-indent: -0.25in;">Free Standing Insert (FSI)</b><span style="line-height: 1.15; text-indent: -0.25in;"> – paper
coupons published in cooperative booklets and distributed as Sunday newspaper
inserts and mailed directly to consumers’ homes.</span></font></li>
<li style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;"><b style="line-height: 1.15; text-indent: -0.25in;">Digital Coupons</b><span style="line-height: 1.15; text-indent: -0.25in;"> – the two most popular
digital formats are Load-to-Card (L2C) and Print-at-Home (PAH). These are sent
electronically to target consumers via any digital channel, including email,
in-app, social, but most commonly, they are published online on retailer websites
and third-party savings portals.</span></font></li>
<li style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;"><b style="line-height: 1.15; text-indent: -0.25in;">Catalina Coupons</b><span style="line-height: 1.15; text-indent: -0.25in;"> – also known as ‘electronic
checkout’ coupons, they are printed dynamically at the time of checkout on
<font color="#3367d6">Catalina</font>’s proprietary in-store printers.</span></font></li>
<li style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;"><b style="line-height: 1.15; text-indent: -0.25in;">Instant Redeemable Coupons (IRC)</b><span style="line-height: 1.15; text-indent: -0.25in;"> – these
are coupons that are attached to the product itself, either as peel-off
stickers, bottle-hangers, or neck tags, and can be redeemed immediately by the
consumer at checkout.</span></font></li></ul>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">And then, there are all the other modes of distribution, which include
direct mail, in-person handouts, at-shelf pads or coupon machines, printed in
magazines and circulars, etc.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">3. Clipping<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">Technologically, this is not a complicated step, but it is a very
important one from the standpoint of the CPG marketers. It is the step when the
consumer takes their first action vis-à-vis the coupon and demonstrates their <i style="line-height: 1.15;">interest</i>,
or even <i style="line-height: 1.15;">intent,</i> to take advantage of the discount offer. <o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">In the world of traditional paper coupons, this action takes the form
of the consumer literally using scissors to ‘<i style="line-height: 1.15;">clip</i>’ the coupon from the
FSI booklet and saving it (usually placing it in their wallet) for later use.
For ‘<i style="line-height: 1.15;">extreme couponers</i>’, laying out all the coupon booklets on the
kitchen table each Sunday and clipping the offers they like is a coveted weekly
ritual.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">In the case of digital coupons, the ‘clipping’ is virtual and it
involves the consumer clicking on the coupon and adding it either to their
retailer loyalty-card account or another authenticated identity account. For
PAH coupons, the printing of the coupon by the consumer is de facto the
clipping action. Nowadays, digital coupons can also be saved into the
smartphone wallet or payment apps to be electronically presented – or
automatically redeemed – at checkout.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">4. Redemption<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">This is by far the most critical step – both for the consumer
experience and for future innovation of the coupon industry infrastructure. The
consumer wants to be able to take the coupon – <i style="line-height: 1.15;">paper or digital</i> – to <i style="line-height: 1.15;">any</i>
store where they are shopping and have it <i style="line-height: 1.15;">readily</i> and <i style="line-height: 1.15;">effortlessly</i>
redeemed by the retailer.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">With paper coupons, such as FSI or Catalina, this consumer expectation is
met pretty much flawlessly, thanks to an industry infrastructure of technology
and agreements that have been in place and operating smoothly for decades.
Retailer POS systems have all been programmed to read the GS-1 bar code and
instantaneously recognize and honor a printed manufacturer coupon. The
contracts both CPG and retailers have with clearing houses, such as <font color="#3367d6">Inmar</font> and
<font color="#3367d6">NCH</font>, give all players confidence in the system – retailers are comfortable
fronting the face value of the discounts because they know they will get paid,
and CPGs know they will get a detailed accounting of all coupons redeemed at
each retailer.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">With digital coupons, the value proposition is still not quite there as
compared to what consumers have come to expect from paper coupons. The most
dominant form of electronic paperless coupons, L2C digital coupons, require a
membership or loyalty card account with a particular retailer. So, for example,
a consumer who loads a digital coupon to their <font color="#3367d6">Albertsons</font> “just for U” rewards
card, cannot redeem that coupon at a <font color="#3367d6">Kroger</font> supermarket or at the nearby
drugstore or convenience store. For the CPG brand manager, that means that they
cannot really plan and execute ‘national’ digital coupon campaigns, but rather
have to activate retailer by retailer, effectively turning digital coupons into
an extension of their retailer-specific trade marketing budgets.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">The reason for that disconnect is that, instead of having all POS
systems utilize a single standard “language” for recognizing and redeeming
digital coupons, each retailer has their own software solution, either
homegrown or provided by one of the leading digital coupon integrators,
<font color="#3367d6">Quotient</font> and <font color="#3367d6">Inmar</font>. These integrators have multiple retailers in their
respective networks, so to some extent, they can offer CPGs a ‘multi-retailer’
solution, but to the consumer, the experience is still fragmented.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">5. Clearing<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">This is the backbone of the couponing industry. The job of the clearing
house is to keep track of all coupon codes within a CPG campaign, collect the
physical coupons – or a record of the digital coupons – redeemed at various
retailers, count them and verify the cumulative face-value amounts each
retailer advanced to consumers who redeemed the coupons, provide detailed
accounting and reporting to the brand manager, and use the funds in the CPG
campaign escrow account to settle these outstanding amounts with all retailers.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">In the case of physical coupons, cashiers place the redeemed paper
vouchers in Ziploc bags, which are delivered to the clearing house. Retailers
are compensated by the CPG (usually $0.08 per redeemed coupon) for this
“handling” of paper coupons.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">Clearing providers then ship all the paper coupons to a processing
facility, usually across the border in Mexico, where they are manually counted,
and the information about the types of coupons redeemed, the face value, the
retailer where the redemption took place, the product category and brand name,
etc. is entered in the clearing systems.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">The process for digital coupons is analogous, except there is no paper
to collect, ship and count. Instead the software integrator who provides the
retailer’s coupon recognition and redemption capability, connects their
systems, or in some cases provides a flat file, to transmit the same
information about the redeemed digital coupons. While the clearing system is
vital and reliable, one can easily see where the process can be improved or
even disrupted.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<font face="verdana" size="2" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;">Coupons continue to be a powerful tool in the CPG marketer’s toolkit,
and consumers’ love affair with coupons has shown no signs of abating – in 2018,
U.S. consumers saved an estimated total of $2.5 billion by using manufacturer
coupons. As the world of media and marketing services continues to digitize, it
is key that industry players understand all the steps in the Life of a Coupon
and why the legacy system that powers traditional paper coupons works. More
importantly, the industry must work in tandem to resolve the limitations of the
existing infrastructure that prevent digital incentives from rising to the
scale and popularity of the paper tools, like FSI and Catalina coupons, that
preceded them. <o:p></o:p></font></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;"><span style="line-height: 1.15;"><font face="verdana" size="2" style="line-height: 1.15;"><br /></font></span></div>
<div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: verdana; font-size: x-small;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEie822U_SBdk7O8WpGaLYVUPxd6xAwzqElfSs8fcz1zMf2ZWc7dkZ0uhpeYi22Wr5UAOuhLi24PT0EwIm_tskCn1dPgWCqGOPyW1XWEAIamGwP7Sszy6WlFaIhIqPqHWQtKGTP3l_iu2v_A/s0/expertscoop-logo-square-FAV-XS.png" /></span></a></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: center;"><br /></div>Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com0New York, NY, USA40.7127753 -74.005972840.327540299999995 -74.6514198 41.0980103 -73.360525799999991tag:blogger.com,1999:blog-4046236588836115162.post-73399064188209806222020-07-02T23:13:00.006-04:002020-09-10T12:48:55.150-04:00The Strategy Checklist, Part 2: A Closer Look at Each Step of the Strategy Process<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2_zEP8kUi0NeJE3n2lL3EvhddBvAa5C4qwTA1lfUNJM7csqHQrIYIk0Egkly5Zx39jyomvTqWKK9d6O0rMIUurEQuIBXNIDLr1bIiR5Ivu_Fp6UzuVcD9KQHv1lt47R079z78luAJkadU/s1500/Puzzle_bw.png" style="margin-left: 1em; margin-right: 1em;"><font face="verdana"><img border="0" data-original-height="599" data-original-width="1500" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2_zEP8kUi0NeJE3n2lL3EvhddBvAa5C4qwTA1lfUNJM7csqHQrIYIk0Egkly5Zx39jyomvTqWKK9d6O0rMIUurEQuIBXNIDLr1bIiR5Ivu_Fp6UzuVcD9KQHv1lt47R079z78luAJkadU/w640-h256/Puzzle_bw.png" width="640" /></font></a></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">Let’s talk some more about strategic planning.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">More specifically, the detailed steps comprising the end-to-end process
of developing and executing a compelling and cohesive corporate strategy.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">In <span style="line-height: 1.15;"><a href="https://www.expertscoop.com/2020/06/strategy-checklist-1.html">Part 1 of this two-part series</a></span>, I introduced <i>The Strategy Checklist </i>framework (see
Figure 1). And in this article, I delve into each step of the process to
demonstrate how it can be used by strategy executives and business leaders to orchestrate
an end-to-end strategy process that connects a company’s values and vision with
its strategic plan, and drives results that advance its long-term objectives.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<a name='more'></a><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<o:p style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirQckJxK_pzE6ovNkQDNhyphenhyphencba-CfA335DBKjNMByHVd5SVjxBBF7zZzYGhyphenhyphenIHQAw3RKPQwHu4O0Iy1ZarPcvYQc8yM-Xivxm0GvdwLMfaN71PT5ZAmM2ZErrklSgzou2g4Us0reFCSvV_i/s1500/Strategy+Process.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="849" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirQckJxK_pzE6ovNkQDNhyphenhyphencba-CfA335DBKjNMByHVd5SVjxBBF7zZzYGhyphenhyphenIHQAw3RKPQwHu4O0Iy1ZarPcvYQc8yM-Xivxm0GvdwLMfaN71PT5ZAmM2ZErrklSgzou2g4Us0reFCSvV_i/w640-h362/Strategy+Process.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span><font size="2"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><b style="line-height: 1.15;">Figure 1. </b>The Strategy Checklist - an end-to-end
process for developing and executing a compelling corporate strategy</span></span><span style="text-align: left;"> </span></font></span></td></tr>
</tbody></table>
</font></span></o:p></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana"><br /></font></span></b></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Purpose</font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">Most companies that have systematic strategy processes, usually jump –
and really only do – phase 2 of The Strategy Checklist: planning. That’s why
the corporate strategy process is most commonly called “<i style="line-height: 1.15;">strategic planning.</i>”
It’s kind of like the annual budget, but a little less frequent, and often <i style="line-height: 1.15;">a
lot</i> less consequential.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">But planning, near or long-term, can be a rudderless exercise, if phase
1, purpose, is left unclear or completely undefined. Deciding what a company
stands for, what it believes in, what it values, what it strives for in the
long run, and making that clear to everyone – these are critical steps to
having a strong culture, a differentiated strategic position, and a successful
business. It defines the <i style="line-height: 1.15;">north star</i> for the company and all its internal
and external stakeholders.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">There are three basic steps in the purpose phase of The Strategy
Checklist:<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Values<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">If you keep asking “<i style="line-height: 1.15;">why</i>”
long enough, you eventually get to values. Values are the most deeply ingrained, beliefs and motivators. They are what define people and companies.
They are usually passed down by family, guardians and role models. They are
deeply personal and rooted in emotions and principles. <o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Values are not about
‘<i style="line-height: 1.15;">what</i>’ we do – they are about ‘<i style="line-height: 1.15;">how</i>’ we do things, and ‘<i style="line-height: 1.15;">why</i>’
we do them. They are the ultimate compass that steers our decisions and
choices. The <a href="https://www.hqmc.marines.mil/hrom/New-Employees/About-the-Marine-Corps/Values/" style="line-height: 1.15;">U.S.
Marine Corps</a> and <font color="#3367d6"><a href="https://www.nytco.com/company/mission-and-values/" style="line-height: 1.15;">The
New York Times</a> </font>provide good examples of clearly defined, simply articulated
values that don’t even mention what these organizations do – they motivate their
people and guide their mission.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
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<span style="line-height: 1.15;"><font face="verdana">Values are usually
established by the founders of an organization and are meant to be there
‘forever.’ As times or leaders change, values can be revisited or refreshed,
but these tend to be rare, seminal occasions. <o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Vision<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">This step is about
envisioning the future we want to create and live in, the dreams we want to fulfill, the things we want to build and experience. The vision is an
inspiration for all stakeholders, a beacon to keep referencing when formulating
plans or facing challenges.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
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<span style="line-height: 1.15;"><font face="verdana">A clear and powerful
example is Oxfam’s vision: “<i style="line-height: 1.15;">A world without poverty.</i>” In 1980, Bill
Gates formulated a simple, prophetic vision for <font color="#3367d6">Microsoft</font>: “<i style="line-height: 1.15;">A computer on
every desk and in every home.</i>” His vision was realized probably a lot
faster than even he ever imagined.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Defining the vision
for the company is probably the most important thing a CEO must do. And because
of that, it should happen as soon as new leaders take the reins of an
organization. A vision should ideally be defined in ‘<i style="line-height: 1.15;">timeless</i>’ terms to
ensure its longevity and continued relevance. But even the most ‘<i style="line-height: 1.15;">evergreen</i>’
of visions should probably be updated every 3-5 years, given how fast the world
is changing.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Mission<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">This step starts to
talk about what the company does day-to-day, whom it serves, how it creates
value, how it competes. It is more concrete and action-oriented than the vision
– it describes the core activities the company performs in service of its vision.
It also can refer to how a company defines and measures success, thus starting
to make a connection with the eventual objectives and KPIs that will be
established in the planning phase.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-left: 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">For example, <a href="https://www.nytco.com/company/mission-and-values/" style="line-height: 1.15;"><font color="#3367d6">The New York Times</font></a>’s
mission is “<i style="line-height: 1.15;">We seek the truth and help people understand the world.</i>” And
TED, the nonprofit that gave its name to short, poignant talks, synthesized its
mission in true TED fashion: “<i style="line-height: 1.15;">Spread ideas.</i>”<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Planning<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">This is the most familiar and commonly practiced phase of the strategy
process. Most companies have recognized that just budget planning for one
quarter or one year ahead, while absolutely necessary in order to achieve their
financial objectives, is not sufficient to ensure success in the longer run.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">In this phase, the leadership team looks out at the appropriate
strategic horizon – could be 1-2 years, could be 3-5 – and defines the top
objectives for the organization and the major steps it needs to take to achieve
them. All that planning, when phase 1 has been properly completed, should be
done in service of the company’s stated vision and mission, and in keeping with
its values and purpose.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Goals<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">The first step of
any planning process is to set objectives. At the outset of any strategic
planning exercise, CEOs must decide on and communicate the goals the
organization will need to attain to advance its mission and make meaningful progress
toward achieving its vision.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Goals provide the
bridge between the more abstract corporate vision and the concrete initiatives the
company will have to execute as it moves forward. They have to be rooted in the
‘why’ spelled out in the purpose phase, and progress against them has to be
observable and measurable to allow the organization to gauge its advancement
and success.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Capabilities<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">The next step, after
goals have been set, is to conduct what strategists call a ‘gap analysis’ –
what capabilities does the company need, that it currently lacks, or what does
it need to do, incrementally or differently, in order to be able to achieve its
goals. <o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Capabilities are
usually described in ‘<i style="line-height: 1.15;">people, process, technology</i>’ terms. And they can
either be cultivated internally or acquired externally. To achieve its goals, a
company may need new talent or expertise; it may require technology, tools or intellectual
capital; or it may need new procedures, governance and management disciplines. <o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Defining the ‘<i style="line-height: 1.15;">gaps</i>’
of strategic capability for the company lays the foundation for the actual
initiatives and projects that the company will have to include in its strategic
plan.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Priorities<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Once the required
capabilities and actions to achieve the strategic goals have been identified,
the most important step the leadership team must take is to assign priorities.
Few organizations have the resources or capacity to do everything they plan, so
setting priorities is key to success.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Most organizations
are surprisingly deficient at this task. Competing agendas, pet projects,
desire to please everyone all get in the way of effective prioritization. Which
is why it is critical that priorities get decided at the top and clearly
communicated down.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">There are a number
of frameworks that are used to assign different priority to initiatives,
projects and tasks. The most common ones involve mapping initiatives on a 2-D
matrix – either based on ‘<i style="line-height: 1.15;">importance vs. urgency</i>’ or ‘<i style="line-height: 1.15;">effort vs.
value</i>’ – and prioritizing the most feasible and impactful activities. Taking
sequencing into consideration is also part of this process, as certain
activities may be dependent on others being executed first.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Execution<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">In many companies, the strategy group is not even tasked with
overseeing and orchestrating this phase of the strategy continuum, which is a major
miss. And often, no one is – execution is left to individual groups and
managers, without any central process to track, coordinate and report progress against
the strategic objectives.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">Organizations that do this phase well have a <i style="line-height: 1.15;">Corporate PMO</i>
(Program Management Office) embedded in their strategy function and providing centralized
administration, coordination and systematic tools for tracking and reporting on
all strategic initiatives that have been prioritized as part of the strategic
plan. It doesn’t have to be the rigid and bureaucratic structure many imagine
when they hear ‘<i style="line-height: 1.15;">PMO</i>.’ On the contrary – the best PMO units are intimately
familiar with and invested in the business; they are flexible and
client-service oriented; and they help business teams execute and meet their
objectives as much as they track and administer the process.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
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<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Initiatives<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">The first-order-of-business
responsibility for a Corporate PMO is to help the team construct and formalize
the Corporate Portfolio of Strategic Initiatives. This takes all the necessary
activities that were identified during the capabilities step, overlays the
agreed-upon priorities, and creates a project portfolio that becomes the embodiment
of the strategic plan, and its day-to-day manifestation to the entire
organization.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">A well-constructed corporate
portfolio of initiatives should rely on a collection of PMO tools and processes
that ensure consistency and discipline of execution. Each initiative should
have a formal charter stating its purpose and objectives, its main planned activities,
milestones and success KPIs, its executive sponsors, steering committee, and
team members. A <a href="https://www.smartsheet.com/comprehensive-project-management-guide-everything-raci" style="line-height: 1.15;">RACI
matrix as this one provided by <font color="#3367d6">Smartsheet</font></a><font color="#3367d6"> </font>(short for Responsible,
Accountable, Consulted, Informed), is a critical tool to clarify who’s in charge,
who needs to answer for what, and who is doing what.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">In addition to
formalizing the governance charters for each initiative, the Corporate PMO also
should deliver an ongoing process for reviewing the portfolio as a whole,
finding common threads and efficiencies among initiatives, and making sure
teams in different silos running different initiatives learn from each other,
make the necessary connections, and operate from the same set of priorities and
strategic narratives.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Tasks<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">This is the realm of
day-to-day project management, utilizing detailed project plans, task lists,
issue logs and risk matrices. Ideally, all initiatives that comprise the
corporate portfolio should utilize the same discipline of PMO processes and tools,
and be on one project management platform, such as <font color="#3367d6">Smartsheet</font>.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">At the very least,
each project should have an assigned project manager who administers and
populates a detailed project plan and issue log, conducts weekly (or whatever
the right frequency is) calls, assigns tasks for execution or issues for resolution
based on the RACI matrix, and produces all reporting, data and documentation required
by the project sponsor and the steering committee.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Often the quality of
execution of key initiatives is left to individual teams or business units who
may or may not have the ability and discipline to deliver professional project
management at the task level. That is a mistake. The investment in professional
project management resources, who can be leveraged across multiple initiatives,
is negligible compared to the cost of failing to execute as planned.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<b style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana">Metrics<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Defining and
tracking success metrics is the final step of the strategy process. It is unfortunately
often overlooked or reduced to just tracking obvious KPIs, such as revenue or
cost, which are among the ultimate outputs of executing the strategy, but may
not reveal whether the strategy is being executed in line with all the
strategic objectives and values the company established in the earlier stages of
the process.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Throughout the execution
phase of the strategy process, the leadership team should be focused and
constantly tracking their progress against the <i style="line-height: 1.15;">right</i> KPIs. But what are
those? The right KPIs close the loop between the highest aspirations and goals
the team set in the early phases of the strategy process and the actual
outcomes that the company is producing as a result of executing the strategic
initiatives. If the results are achieving the company’s goals, fulfilling its mission,
and advancing its vision, while living the corporate values, then the strategy
is working. If all the initiatives are being executed, and yet the KPIs are not
in line with the goals, mission, and vision, then something is broken.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">For example, increasing
‘<i style="line-height: 1.15;">diversity</i>’ or ‘<i style="line-height: 1.15;">learning</i>’ may have been set as key goals that
advance the company’s mission and vision. Then appropriate KPIs needs to be
identified that properly measure the progress against these objectives. Just tracking
revenues or earnings or market share will not shed light on the company’s
success toward its diversity or learning objectives.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">The best practical
tool strategists use to manage this final stage of The Strategy Checklist is the
<a href="https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2" style="line-height: 1.15;"><i style="line-height: 1.15;">balanced
scorecard</i>, first developed by US management thinkers Robert S. Kaplan and
David P. Norton</a>. It was initially introduced as an alternative to unidimensional
performance systems that focused excessively on one metric, such as earnings
per share or return on investment. It proposed a multidimensional view of a
company’s performance, introducing a construct that involved a number of
metrics along four key perspectives of the business: financial, operational,
customer, and innovation and learning.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">Since then, balanced
scorecards have taken many forms, and leadership teams have been adapting and customizing
them to their particular strategies and needs. The idea is not necessarily to
follow the exact framework developed by Messrs. Kaplan and Norton, but rather
to create a multidimensional performance measurement tool and populate it with
the <i style="line-height: 1.15;">right</i> metrics – the ones that clearly indicate whether the company
is indeed achieving its strategic goals and realizing its vision.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin: 0in 0in 0.0001pt 0.5in;">
<span style="line-height: 1.15;"><font face="verdana">The other critical
tool to apply in this stage is <a href="https://rework.withgoogle.com/guides/set-goals-with-okrs/steps/introduction/" style="line-height: 1.15;">OKRs
(Objectives and Key Results)</a>. OKRs are that final step in the strategy
continuum that aligns the compensation and incentives of individual company
leaders and employees to the strategic goals and KPIs that were defined in the
earlier stages. First introduced by Andy Grove when he was CEO at <font color="#3367d6">Intel</font>, and
later popularized by <font color="#3367d6">Google</font>, OKRs are a simple, practical and powerful tool to
standardize employee performance measurement, while connecting it with the
company’s strategy.<o:p></o:p></font></span></div>
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<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<o:p style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana"><br /></font></span></o:p></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">Strategy is a journey that starts at a higher place with fuzzy concepts
and emotionally charged beliefs. But ultimately it needs to get translated into
specific, even mundane, tasks and actions that collectively, over time, result
in the realization of the original vision.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="line-height: 1.15;"><font face="verdana">It is much like the process by which the artistic vision and divine
inspiration of an architect, such as renowned 19<sup style="line-height: 1.15;">th</sup>-century Catalan
modernist Antoni Gaudí, is eventually (after 144 years) realized by the daily
toil of masons, bricklayers and stone carvers to produce the magnificent <a href="https://sagradafamilia.org/en/" style="line-height: 1.15;">La Sagrada Familia cathedral</a>. <o:p></o:p></font></span></div>
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<span style="line-height: 1.15;"><font face="verdana">The Strategy Checklist is a practical recipe to plan, organize and
execute a cohesive and orderly strategy process that starts with the highest values
and aspirations, translates them into specific objectives and plans, and employs
disciplined execution tools to ensure the full realization of the strategic
vision.<o:p></o:p></font></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span style="line-height: 1.15;"><font face="verdana"><br /></font></span></div>
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<br />Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com0New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-90073403447345348922020-06-28T17:23:00.008-04:002020-09-10T12:49:18.269-04:00The Strategy Checklist, Part 1: A Recipe for Running a Top-Notch Strategy Process<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYuz0aXDnpd5nd1aTv9LvwovZus0UQW84MtUIOVMEPuOrETun6mKyE2L1KLsWRxkIncYbb20bDpIOKFct65Ur-Wgp6zLKx0wKRsTLxPVEjOPa7RexsvgbT3YIGR5J55cgPoZJ7vnGv0Io9/s960/Checklist_bw.png" style="line-height: 1.15; margin-left: 1em; margin-right: 1em;"><span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font><img border="0" data-original-height="384" data-original-width="960" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYuz0aXDnpd5nd1aTv9LvwovZus0UQW84MtUIOVMEPuOrETun6mKyE2L1KLsWRxkIncYbb20bDpIOKFct65Ur-Wgp6zLKx0wKRsTLxPVEjOPa7RexsvgbT3YIGR5J55cgPoZJ7vnGv0Io9/w640-h256/Checklist_bw.png" width="640" /></font></span></span></a></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>Let’s talk about strategic planning.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>More specifically, the end-to-end process of developing and executing a
compelling corporate strategy. Strategy is a process - from the highly
personal, nebulous stage of defining a company’s values and vision, to the long-term
planning stage of setting goals and priorities, to the unglamorous and
overlooked stage of execution, coordination and results-tracking. And like
every process, it has proven formulas, best practices and predictable flows
that can be harnessed to develop winning strategies and deliver strong results.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>This article is Part 1 of a two-part series. Here, I introduce <i>The Strategy
Checklist </i>framework. And <span style="line-height: 1.15;"><a href="https://www.expertscoop.com/2020/07/-strategy-checklist-2.html">in Part 2, I delve into each of its steps to showcase its practical application</a></span>. <o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>Strategy is often viewed as more of an artform, an unstructured,
intuitive exercise, propelled by inspiration and brilliance – a bit like
conceiving and producing a memorable and emotionally powerful TV commercial.
And certainly, there are moments in the strategy continuum that this kind of
creative originality is critically important.</font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>But just like finance, operations or even marketing, strategy is a functional
discipline with tools, frameworks, processes and metrics, which are not there
to replace or suffocate the creativity, but to actually enable it, guide it, nurture
it, and make sure it produces tangible, meaningful outcomes.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>A great many companies do not do any kind of formal strategy work or
systematic strategic planning – ‘strategy’ just <i style="line-height: 1.15;">happens</i> for them,
organically. Either it takes place in the head of their CEO or founder or it
doesn’t take place at all. Imagine if <i style="line-height: 1.15;">finance</i> or <i style="line-height: 1.15;">tax</i> were done
that way – no formal budget process, no standard bookkeeping principles, no formalized
weekly or monthly reporting… Business would still get done – a great many small
businesses don’t quite follow such elaborate finance processes.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>But most companies of any size and repute, and their shareholders, have
long decided that this kind of “organic” financial or tax management is
unacceptable. So why do they settle for undisciplined “organic” strategy?<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>Many would say that there is no single method for developing a
strategic vision and a strategic plan; that every company needs to discover its
own way, particular to its own industry, its moment in time, and its unique
circumstances.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>While all of these are important inputs, my experience has taught me that,
indeed, there is a fairly predictable and reliable recipe for designing and
leading a high-quality strategy process. A process that not only delivers a
differentiating purpose, a solid plan and a mechanism to execute successfully –
but most importantly, links all these elements into a north star and a
narrative that stakeholders, both internally and externally, can understand,
connect with and rally around.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>I call it the “<i style="line-height: 1.15;">The</i> <i style="line-height: 1.15;">Strategy Checklist</i>” (see Figure 1.).<o:p></o:p></font></span></span></div>
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<o:p style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font> <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="line-height: 1.15; margin-left: auto; margin-right: auto;"><tbody style="line-height: 1.15;">
<tr style="line-height: 1.15;"><td style="line-height: 1.15; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOPEAXVYPjd71754jNn1DfHVmEv2GHLFlRo-AEWmfCZ_FyzJUhbHJD5vo-P_I5xLEndiSPZ6-B-3HLp3zE6CVa4UY-7qqvBuRbDZF5tUisjTPgOuC9IE3yTt-YiSo0eu8sHfsZJ2Tj5qHd/s1500/Strategy+Process.png" style="line-height: 1.15; margin-left: auto; margin-right: auto;"><img border="0" data-original-height="849" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOPEAXVYPjd71754jNn1DfHVmEv2GHLFlRo-AEWmfCZ_FyzJUhbHJD5vo-P_I5xLEndiSPZ6-B-3HLp3zE6CVa4UY-7qqvBuRbDZF5tUisjTPgOuC9IE3yTt-YiSo0eu8sHfsZJ2Tj5qHd/w640-h362/Strategy+Process.png" width="640" /></a></td></tr>
<tr style="line-height: 1.15;"><td class="tr-caption" style="line-height: 1.15; text-align: center;"><span style="line-height: 1.15;"><span><font size="2"><b style="line-height: 1.15;">Figure 1. </b>The Strategy Checklist - an end-to-end
process for developing and executing a compelling corporate strategy</font></span></span></td></tr>
</tbody></table>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>I drew inspiration from “<a href="http://atulgawande.com/book/the-checklist-manifesto/" style="line-height: 1.15;"><i style="line-height: 1.15;">The Checklist
Manifesto</i></a>”, Atul Gawande’s bestseller, in which he describes how even
the most unstructured activities and the most experienced and talented experts
benefit greatly, and ultimately owe their success to, structured and
disciplined procedures.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>There are three distinct phases to The Strategy Checklist:<o:p></o:p></font></span></span></div>
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<ol style="line-height: 1.15; text-align: left;">
<li style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font><b style="line-height: 1.15;">Purpose</b> – the vision for the future and
the core values that define the company’s north star</font></span></span></li>
<li style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font><b style="line-height: 1.15;">Planning</b> – the near-term and long-term
objectives and roadmap for achieving the vision</font></span></span></li>
<li style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font><b style="line-height: 1.15;">Execution</b> – the day-to-day processes,
tools and metrics that deliver against the plan</font></span></span></li>
</ol>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>If this
process is applied well, at any point along The Strategy Checklist continuum, companies
and their stakeholders can answer the all-important question ‘<i style="line-height: 1.15;">why</i>’ by
going back to the previous steps. For example: “<i style="line-height: 1.15;">Why are we prioritizing and running
these initiatives?</i>” … “<i style="line-height: 1.15;">Because they close the capability gaps and help
us achieve our goals, our mission, and ultimately our vision.</i>”<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>To link
high-level strategy with the concrete daily activities companies run, at any
point, the question ‘how’ can be answered by going forward to the subsequent
steps. For instance: “<i style="line-height: 1.15;">How will we achieve our vision and mission?</i>” … “<i style="line-height: 1.15;">By
hitting our strategic goals, as a result of executing our priority initiatives.</i>”<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font>In <span style="line-height: 1.15;"><a href="https://www.expertscoop.com/2020/07/-strategy-checklist-2.html">Part 2 of this series</a></span>, I will dive into The Strategy Checklist framework one step at
a time, and demonstrate how it can be applied by strategy executives and business
leaders to orchestrate an execute and end-to-end strategy planning process
that unifies the company’s values and vision with its strategic plan and
initiatives, and ensures the outcomes of its day-to-day activities advance its
long-term objectives. <o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><font face="verdana"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0Mt7lSOR5eGLT-WAcDRFOA178bqDvSvykB0avkwmAjQf3VDry85uex5p5At0Zyv1vdQ-6Kse6IXZb2aPsBTGOGxpG7lexJirb1mJCtpykU8raAvKmIrQWyn_-Re-R9ElLVL5HUsj8WU3x/" /></font></a></span></div>
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<br />Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com0New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-62947678751134911282020-06-22T20:15:00.010-04:002020-09-10T12:49:35.625-04:00Unicorn or Supernova: Can Instacart Sustain Its Meteoric Rise?<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEie9iL6RXDMxOuAyOGYmvIaV-PAD1T5OXtSbHnC8fxs1UT_MtDCtSnbN1O8SJH5E7wBraou-IZMEiJbuMGvA_Bd8eZkmrKwo8Sc_1M8olASBZ9jLdMiZHeaY9NkYduI22KifZKF3_IaMb9m/s1500/Instacart_bw.png" style="margin-left: 1em; margin-right: 1em;"><font face="verdana"><img border="0" data-original-height="599" data-original-width="1500" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEie9iL6RXDMxOuAyOGYmvIaV-PAD1T5OXtSbHnC8fxs1UT_MtDCtSnbN1O8SJH5E7wBraou-IZMEiJbuMGvA_Bd8eZkmrKwo8Sc_1M8olASBZ9jLdMiZHeaY9NkYduI22KifZKF3_IaMb9m/w640-h256/Instacart_bw.png" width="640" /></font></a></div><font face="verdana"><br /></font><div class="MsoNormal"><font face="verdana">Let’s talk about Instacart.</font></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">More specifically, the soaring fortunes of the grocery delivery company, boosted by the COVID-19 pandemic, and the sustainability of Instacart’s growth and popularity – not to mention its ballooning valuation.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana"><span><a name='more'></a></span>Over the past decade, retail sales have been steadily migrating online, and <a href="https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf">according to the US Census Bureau, e-commerce reached nearly 12% of retail sales in Q1 of 2020</a>. The brunt of that migration had, however, been <a href="https://www.emarketer.com/content/the-coronavirus-will-cause-a-lasting-step-change-in-grocery-ecommerce">largely driven by non-food categories, such as books (54.9%), electronics (42.7%), toys (39.8%), and apparel (28.9%), according to eMarketer data</a>.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">Groceries had for a long time appeared to be immune to the e-commerce contagion, with the percentage of food and household products sold online hovering in the low-single-digits. Last December, <a href="https://www.digitalcommerce360.com/2019/12/24/2019-ecommerce-in-review-online-grocery-sales/">digitalcommerce360.com reported that in 2019 online grocery accounted for 6.3% of the $682 billion in total supermarket sales</a> in the U.S. Somehow, shopping for food and household items appeared to be a different kind of experience – one that the vast majority of shoppers seemed to prefer to do in person at a brick-and-mortar supermarket.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">Then COVID-19 struck the U.S. in March, and all of that changed – dramatically. Scared to go to the store, turned off by empty shelves, or unwilling to wait in long lines, consumers turned to online grocery shopping in droves. This week, <a href="https://www.wsj.com/articles/grocers-embrace-food-delivery-but-they-still-dont-love-it-11592056800">The Wall Street Journal reported that online grocery sales rose 65% in May</a> vs. March of this year, with 43 million customers buying food online (compared to 39.5 million in March). The largest U.S. supermarket chain, <a href="https://www.cnbc.com/2020/06/18/kroger-stuns-with-92percent-e-commerce-gain-but-it-has-to-prove-its-not-a-coronavirus-blip.html"><font color="#3367d6">Kroger</font>, just disclosed that its digital sales grew by a whopping 92% in the first fiscal quarter</a>, which ended May 23. Similarly, <a href="https://www.cnbc.com/2020/05/19/walmart-wmt-earnings-q1-2021.html"><font color="#3367d6">Walmart</font>’s e-commerce sales jumped 74% in the first quarter</a>, and other major supermarket chains all reported stellar online grocery sales growth.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">Grocery delivery services – both owned and operated by retail chains (such as <font color="#3367d6">Shipt</font> and <font color="#3367d6">Peapod</font>, subsidiaries of <font color="#3367d6">Target</font> and <font color="#3367d6">Ahold</font>, respectively) and independent ones (such as <font color="#3367d6">Instacart</font>) – were the immediate beneficiaries of these extraordinary circumstances and the resulting changes in consumer behaviors. Since March, Instacart orders reportedly increased fivefold, the company reported its first-ever profitable quarter, and added 300,000 new gig workers and another 18,000 customer-service reps.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">In early June, <font color="#3367d6">Instacart </font>raised $225 million in new growth capital (it had already raised nearly $2 billion prior to that) at a post-money valuation of $13.7 billion, almost doubling the company’s worth from its last investment round in December 2018. A pretty astounding valuation, in my opinion. For context, <font color="#3367d6">Kroger</font>, a publicly traded company that operates nearly 2,800 supermarkets in 35 states and generates revenues of over $120 billion, is currently valued at just over $25 billion.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">COVID-19 is the second ‘black swan’ event in recent years to give Instacart an external boost. The first one was the acquisition of <font color="#3367d6">Whole Foods</font> by <font color="#3367d6">Amazon</font>, which back in the spring of 2017 threw the supermarket industry in a frenzy, causing a mad rush of investments in e-commerce product development and acquisitions by top grocery chains. Both events created significant positive externalities for Instacart, and both times, the company has proven to be ‘in the right place, at the right time’ to capture the windfall.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">But how likely is this winning streak to last in the long run?<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><font face="verdana"><b><span lang="EN">On the optimistic side</span></b><span lang="EN">, <font color="#3367d6">Instacart </font>has developed a first-mover advantage in pioneering a platform service that creates real value for consumers, retailers, and gig workers.<o:p></o:p></span></font></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><b><span lang="EN"><font face="verdana">Uber for Groceries<o:p></o:p></font></span></b></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">Instacart’s shopping platform offers consumers the ability to place an online order with a nearby store, and have it assembled and delivered (or prepared for pick-up) by a field force of independent gig workers it calls “shoppers”. Just like <font color="#3367d6">Uber</font> drivers, Instacart shoppers receive star ratings from their customers, which determine their likelihood of getting a customer batch assigned to them. Instacart partners with over 350 national, regional and local retailers and can deliver orders from more than 25,000 stores in over 5,500 cities in North America. Its service can reach more than 85% of U.S. households and 70% of Canadian households.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">For many consumers, the proposition Instacart offers is irresistible. The convenience of shopping online, from the comfort of their home, at whatever hour they choose, and having all these bags of groceries delivered same-day to their doorstep, sometimes within the hour, is going to keep them hooked.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><b><span lang="EN"><font face="verdana">An Easy Button for e-Commerce<o:p></o:p></font></span></b></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">The service Instacart offers is a great pre-packaged solution, especially for retailers who don’t have a developed e-commerce offering and delivery services of their own. It’s an ‘<i>easy button</i>’ to instantly enter the e-commerce game with a sophisticated and established solution.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">In the early days of the COVID-19 crisis, as consumers flocked online for their groceries, many of them experienced order cancellations, no available timeslots, lost or delayed deliveries, as the less-than-robust e-commerce platforms of their traditional grocery stores were drowning under the surging demand. Even Amazon had to temporarily close its Prime Pantry delivery service, as it faced an avalanche of orders tied to the coronavirus outbreak. For a great many retailers and consumers, being able to lean on Instacart’s robust technology platform and delivery workforce was a godsend during that time.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><b><span lang="EN"><font face="verdana">The Instacart Bump<o:p></o:p></font></span></b></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">Normally, when a tech disruptor, like Instacart, enters a technologically lagging marketplace, like grocery retail, its success comes at the expense of incumbent players. And few retailers harbor the illusion that Instacart is anything but a competitor. But the company has gone out of its way to paint itself as a partner and a complementary service that is a win-win-win for consumers, retailers, and its own shareholders. And there is some early evidence of a complementarity effect that suggests that Instacart creates incremental revenues and jobs, rather than just syphoning them away from traditional supermarkets.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">In February 2020, a <a href="https://www.nera.com/content/dam/nera/publications/2020/Instacart_White_Paper_FINAL_February_2020.pdf">study by <font color="#3367d6">NERA</font> Economic Consulting</a> assessed the impact of Instacart in four states, and concluded that the company’s entry into these markets resulted in a significant incremental lift in grocery revenue and local job growth. Full disclosure: the study was sponsored by Instacart, but nonetheless the results are impressive. The analysis examined Instacart activities in California, Illinois, New York, and Washington, and concluded that adoption of its services by local supermarkets drove an additional $623 million in revenues for these chains and created over 23,000 new jobs for them, including additional cashiers, stocking associates and deli counter clerks, who would not have been hired had the retailer not partnered with Instacart.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><font face="verdana"><b><span lang="EN">On the pessimistic side</span></b><span lang="EN">, while <font color="#3367d6">Instacart</font>’s model fulfills a real niche need, which is at present greatly amplified by the COVID-19 crisis, its long-term staying power will face headwinds from ingrained consumer behaviors and retailer economic interests.<o:p></o:p></span></font></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><b><span lang="EN"><font face="verdana">The Sanctity of Grocery Shopping<o:p></o:p></font></span></b></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">During the shutdown caused by the pandemic, I took over the role of primary shopper in my household and was reminded how important – almost sacred – is the act of choosing and bringing home the food for my family. And I don’t believe I’m the oddball exception. For the majority of consumers, grocery shopping is a deeply personal experience. Seeing, touching, carefully selecting the food they buy, getting inspiration and ideas in the store, discovering new products are all a part of how shopping for groceries should be.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">The idea of a stranger touching their food and stuffing it in big bags or boxes is a turnoff. The COVID-19 ordeal will definitely have a lasting effect on consumers’ willingness to buy food online, but the majority of grocery shoppers are expected to return to their old routines of going to the supermarket and browsing the isles and fresh sections of their favorite stores.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><b><span lang="EN"><font face="verdana">The Value of First-Hand Customer Relationships, and Data<o:p></o:p></font></span></b></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">Probably even more important to the long-term outcome is the retailers’ point of view. Retailers’ entire business model is predicated on a direct, personal relationship with their customers. A personal touch, a local presence that builds a lasting connection and invites the customer to keep coming into the store. Grocery stores are particularly deeply embedded into their local communities, and the personal interaction with their customers is key to the success of their brand.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">In addition, by fostering these direct personal relationships, retailers have earned the right to develop what is now their most valuable asset – the household-level purchasing and loyalty data of their first-party audiences, down to each individual SKU they bought. For most grocery chains, that rich transaction-level data, tied to an individual customer ID, is now a jealously guarded strategic crown jewel. It is parsed out a sold to CPGs and data aggregators, like <font color="#3367d6">IRI</font> and <font color="#3367d6">Nielsen</font>, and leveraged by retailers to drive a range of ‘alternative profit streams’, such as data insights and targeted digital media.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">When a third party, like Instacart, comes in between the retailer and its customer, that direct personal connection is replaced by a very different relationship. The retailer has no ability to communicate with the customer and position its brand appropriately – it just appears as one of the many local supermarket logos the customer can choose from on the Instacart website. The in-store interaction, inspiration and delight retailers strive to create with their displays, broad selection, and product merchandising are gone, and replaced with a gig worker robotically completing a list of tasks as quickly as possible with zero regard for the store atmosphere.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">Instacart also replaces the retailer as the ‘<i>point of purchase</i>’ (or POS) the customer interacts with and pays, thus capturing all the transaction data retailers so covet and protect. The POS is where all promotions – discounts, deals, coupons, loyalty points – are activated, so the retailer surrenders that valuable real estate to Instacart as well. Between the data, promotions and merchandising, retailers’ access to nearly $100 billion in CPG trade marketing funds could be jeopardized if they were to be disintermediated from their end-customers by a player like Instacart.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><b><span lang="EN"><font face="verdana">The Importance of the In-Store Experience, and Eyeballs<o:p></o:p></font></span></b></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">Retailers spend millions on creating an attractive and enticing shopping experience in their stores. Supermarkets are meticulously merchandised and, through strategic placement and cross merchandising of products, are designed to generate trial of new products and inspire impulse purchases. The inviting store atmosphere, the friendly associates, and the wide selection of beautifully displayed products is what supermarkets compete on. It’s how they differentiate from each other and win market share.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">The weekly (sometimes daily) trip to the store, which for groceries has long been how millions of people shop for their food and household necessities, has also resulted in another new prized possession for retailers – millions of eyeballs of engaged, verifiable first-party audiences. These massive audiences fuel highly profitable media and marketing profit streams that are an increasingly meaningful component of retailers’ financials. The <a href="http://ir.kroger.com/Cache/IRCache/da3251f4-a755-beaa-21bf-4947175ada9f.PDF?O=PDF&T=&Y=&D=&FID=da3251f4-a755-beaa-21bf-4947175ada9f&iid=4004136"><font color="#3367d6">Kroger</font> 2019 Fact Book</a> boasts that 11 million households visit their stores daily – an audience that rivals those of the most highly rated TV shows.<o:p></o:p></font></span></div><div class="MsoNormal" style="margin-left: 0.5in;"><font face="verdana"><br /></font></div><div class="MsoNormal" style="margin-left: 0.5in;"><span lang="EN"><font face="verdana">When the shopping trip starts at Instacart, all of that differentiating in-store experience is lost, and so is the retailer’s ability to impact shopping behaviors to grow the basket or increase household penetration. As importantly, lost too are the millions of eyeballs that retailers monetize in the form of in-store media and marketing revenues funded by CPG and other major advertisers.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><b><span lang="EN"><font face="verdana">Remember Triad Retail Media?<o:p></o:p></font></span></b></div><div class="MsoNormal"><span lang="EN"><font face="verdana">In my 33 years of working with retailers, with a few rare exceptions, I have rarely seen them to be innovators, leaders, or even early adopters, of disruptive change – especially technology-driven change. The large capital investments that would take away from store renovation budgets, the threat of operational interruptions by tinkering with store systems, and a culture fiercely focused on the in-store product selection and merchandising (rather than technology innovation) have always stood in their way.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">They are, however, generally fast followers – often piloting a new technology or business model with a third-party partner, but eventually, <i>if it proves to be a highly profitable or strategically differentiating capability</i>, they – especially the major chains – make the effort and investment to bring it in house. Will that happen with the Instacart service they are now experimenting with?<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">One useful analog case is that of <font color="#3367d6">Triad Retail Media</font>. The company was an early player in the marketing technology space that focused on harnessing retailers’ audiences and POS transactions and loyalty data to create a premium-priced, better personalized and measurable digital media business. Its successful partnership with <font color="#3367d6">Walmart</font> ushered in the era of retailers as media companies.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana"><font color="#3367d6">Triad</font> was founded in 2004, and in 2007 it signed an exclusive agreement with <font color="#3367d6">Walmart</font> and <font color="#3367d6">Sam’s Club </font>to sell digital media, including online banner ads, targeted emails, and digital promotions, powered by their POS and loyalty data. Triad would share a portion of the revenues back with the retailers. By 2015, Triad was serving multiple retailers, including <font color="#3367d6">CVS</font>, <font color="#3367d6">Staples</font> and <font color="#3367d6">Kohl’s</font>, and its gross revenues were estimated to be $500 million, with over $120 million in net revenues. In 2016, it was acquired by <font color="#3367d6">WPP</font> for $300 million. At that time, Amazon successfully accelerated its digital advertising business, causing the concept of ‘<i>retail media</i>’ to go mainstream, which them prompted all major retailer to scurry into the space.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">By early 2019, media had become a core pillar of most major retailers’ strategic growth plans, and <font color="#3367d6">Walmart</font> ended its long-time collaboration with <font color="#3367d6">Triad</font>, and brought all media planning and agency services in house into its Walmart Media Group (WMG). Triad lingered for another year, tried (unsuccessfully) to get acquired, and eventually ended up selling its technology assets and team to <font color="#3367d6">Sam’s Club</font>. In April 2020, <font color="#3367d6">WPP</font> shuttered the company.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">Will the <font color="#3367d6">Instacart </font>story go the same way? Or will it manage to successfully coexist with brick-and-mortar retailers’ own e-commerce investments? Or even create incremental value for shoppers and retailers?<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">It depends. First, on whether consumers continue to shift more and more of their grocery buying online or if they revert to old habits. Second, it also depends on how attractive or strategically important e-commerce capabilities become for grocery retailers. If they develop into a core growth strategy, retailers are likely to in-house them. My expectation is that large retailers will do just that – they will watch and learn from companies like Instacart, and when the time is right, they will eliminate the middleman.<o:p></o:p></font></span></div><div class="MsoNormal"><font face="verdana"><br /></font></div><div class="MsoNormal"><span lang="EN"><font face="verdana">On the other hand, if the <font color="#3367d6">Instacart </font>platform proves to be unlocking net new revenues for retailers, and the cost to build and maintain sophisticated e-commerce platforms proves too high for brick-and-mortar chains, then the Instacart model may have real staying power, and maybe even justify what currently appears to be an outlandish valuation.</font></span></div><div class="MsoNormal"><span lang="EN"><font face="verdana"><br /></font></span></div><div class="MsoNormal"><font face="verdana"><span lang="EN"></span></font></div><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: verdana;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXuWHDlxAwyfI41MSyeEKWmW_gNyjg6kYJ5HXKLKMqBCC1KCCFwXq0VqrQ_RJwTLdvvcxC5-KobZq1n5NAZd1-g2iNCsOw1vnBIj0JuFszaAa4E3XTnlwuDDVFCt9nHW-LrQOHsm_qteiN/" /></span></a></div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: verdana;"><br /></span></div><div class="separator" style="clear: both; text-align: center;"><br /></div>Anonymousnoreply@blogger.com2Fairfield, CT, USA41.1408363 -73.261261514.813022135082356 -108.4175115 67.46865046491763 -38.1050115tag:blogger.com,1999:blog-4046236588836115162.post-68174298050811766592020-06-16T21:19:00.009-04:002020-09-10T12:49:56.027-04:00The Growth Cube: A Practical Framework for Engineering Business Model Expansion<div class="separator" style="clear: both; line-height: 1.15; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrjGf7Almzpx3u0NIS5ipzqTAgRRhZitsPQNdKOssX8iELm2c5eT48QtaolYkmhtwv-9zs0yc6PRGvo5VXMfmJzKDgFmSfrMcYq5gi9WhyphenhyphenXSAR2nFQ_q2D04xnHbgBwB3mkygtEGK8JJRF/s960/Growth+Cube+3_bw.png" style="line-height: 1.15; margin-left: 1em; margin-right: 1em;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><img border="0" data-original-height="384" data-original-width="960" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrjGf7Almzpx3u0NIS5ipzqTAgRRhZitsPQNdKOssX8iELm2c5eT48QtaolYkmhtwv-9zs0yc6PRGvo5VXMfmJzKDgFmSfrMcYq5gi9WhyphenhyphenXSAR2nFQ_q2D04xnHbgBwB3mkygtEGK8JJRF/w640-h256/Growth+Cube+3_bw.png" width="640" /></font></span></span></a></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Let’s talk about growth.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">More specifically, a practical framework (<i style="line-height: 1.15;">The Growth Cube</i>) for
developing a comprehensive growth strategy along three capability dimensions most
relevant to realizing the full potential of a company’s business model: product
portfolio, geographic presence, and vertical segment penetration.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><i style="line-height: 1.15;">Growth</i> is a top objective for every business – if it’s not #1 on
the priority list for the CEO, then it’s most likely #2 (possibly, after <i style="line-height: 1.15;">profitability</i>).
It generally means <i style="line-height: 1.15;">growing the company’s revenues</i>. And you can grow
revenues by either selling more volume or by raising one’s average price. More
volume can come either from existing products and customers or from expanding
the product portfolio and penetrating new customer segments. <o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">However, as I suggested in my article on <span style="line-height: 1.15;"><a href="https://www.expertscoop.com/2020/06/value-tree-part-1.html" style="line-height: 1.15;">The Value Tree framework for orchestrating the corporate portfolio of strategic initiatives</a></span>, there
is a distinction, between ‘<i style="line-height: 1.15;">growth</i>’ and ‘<i style="line-height: 1.15;">yield</i>’. Growth is about
delivering strategically significant step change in the size and breadth of the
business, such as creating new products, accessing new inventories, opening up
new markets, and achieving meaningful scale. Yield is about optimizing the
existing business by increased volume penetration of customer accounts and/or by
extracting a higher average price by managing the product mix and tapping customers’
willingness to pay. Thus, “<i style="line-height: 1.15;">sell more of the same to the same customers,</i>”
while a fine yield-optimization strategy, is not, in my view, a compelling growth
strategy.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">The three axes of the Growth Cube framework – products, geographies,
and verticals – are the most practical and impactful dimensions for driving meaningful
growth above and beyond a company’s existing business model (see Figure 1). They
are distinctly independent drivers of growth, each requiring a different set of
capabilities or actions. <o:p></o:p></font></span></span></div>
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<tr style="line-height: 1.15;"><td style="line-height: 1.15; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGcdBNkj_rkSuOkVSEjhQDuIkrAOaGe0W2qJp5YXoNNF1Icmgdkpu8be67MdIQ_ndiCLeBW7K3AEv2MZmu8kRK9Oxf-uOIK2e_6SUR3FDyE2vZYsgZIyRUYZExkDfw8MyUEn6vHA9gCihH/s1500/Growth+Cube.png" style="line-height: 1.15; margin-left: auto; margin-right: auto;"><img border="0" data-original-height="849" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGcdBNkj_rkSuOkVSEjhQDuIkrAOaGe0W2qJp5YXoNNF1Icmgdkpu8be67MdIQ_ndiCLeBW7K3AEv2MZmu8kRK9Oxf-uOIK2e_6SUR3FDyE2vZYsgZIyRUYZExkDfw8MyUEn6vHA9gCihH/w640-h362/Growth+Cube.png" width="640" /></a></td></tr>
<tr style="line-height: 1.15;"><td class="tr-caption" style="line-height: 1.15; text-align: center;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><font size="2"><b style="line-height: 1.15;">Figure 1</b>. The Growth Cube - Three
Capability Dimensions for Realizing the Full Potential of a Company's Business Model </font></span></span></td></tr>
</tbody></table>
</font></span></span></o:p></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><b style="line-height: 1.15;">Products</b><o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">In this dimension, the fundamental question is: <i style="line-height: 1.15;">“What else can we sell
to our existing customers?</i>” The growth thesis is: “<i style="line-height: 1.15;">We have established
relationships with our customers; they have additional unmet needs; and we have
(or can acquire) the product and service capabilities to meet these needs,
thereby generating new revenues from the same customer base.</i>”<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Adding new products or services to the portfolio of customer offerings
is probably the most common growth strategy companies pursue. This is particularly
true for ‘customer-centric’ companies who consider their knowledge of and relationship
with their customers to be their most valuable asset and competitive differentiator.
<font color="#3367d6">Apple</font> is a great example of a company that has systematically unleashed growth
strategies along the Product dimension, offering additional products to their fiercely
loyal consumers – starting with Apple personal computers, adding the iPod and
iTunes, then the iPhone, and the iPad, and Apple Watch, etc.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">It is no accident that product innovation is a popular growth strategy.
Building a strong brand, deep understanding of customer needs, and a loyal customer
base is exceedingly difficult. Once a company has achieved success with that feat,
it makes a lot of sense to monetize its investment in this asset by offering
new products and services to that same customer base. Especially, if the
company has solid research & development (R&D) capabilities to deliver
compelling new product innovation – or a strong pipeline of potential acquisition
targets and the financial wherewithal to execute on product-extension M&A.<b style="line-height: 1.15;"><o:p></o:p></b></font></span></span></div>
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<b style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Geographies<o:p></o:p></font></span></span></b></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Here, the fundamental question is: “<i style="line-height: 1.15;">Where else can we find more of the
same customers as our existing base?</i>” The growth thesis being: “<i style="line-height: 1.15;">Customers
who have the same needs as our current base exist in other geographies, where
we have no presence; we can enter these new markets with our existing product portfolio
and start generating new revenues from this expanded customer base.</i>”<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">This is the second-most common growth strategy companies pursue.
Especially, larger businesses that have the resources required to undertake a
geographic expansion, either domestically or internationally. In a way, this
could be considered as the ‘safest’ growth strategy, since people and
businesses, regardless of where they are located, generally have universal needs
and preferences. Unless, of course, cultural, socio-economic, or
infrastructural differences in that new geography result in a dramatically
different demand profile for the company’s products and services.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">For example, <font color="#3367d6">Google</font> has tried, and failed, to enter the Chinese market in
a meaningful way and replicate the success of its successful flagship products there,
e.g. Google Search, Google Maps and YouTube. But the political and economic landscape,
both in China and here in the US, has created (at least thus far) insurmountable
challenges for Google’s expansion into China.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">On the other hand, <font color="#3367d6">McDonald’s</font>, <font color="#3367d6">KFC</font> and <font color="#3367d6">Starbucks</font> were all wildly successful
in replicating their products and business models in China. All three
companies, icons of American consumerism and on-the-go food and beverage consumption
habits, overcame cultural differences that many professed would doom their entry
into the Chinese market. It turns out gourmet coffee, especially the notion of personalizing
it and enjoying it socially, has a universal-enough appeal to succeed even in the
3,000-year-old birthplace of ancient tea culture.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Geographic expansion strategies are predicated on a company’s confidence
in the universal appeal of its products and services, and its own ability to
replicate the capabilities that are needed to deliver these customer offerings,
including supply chain, physical assets, and skilled labor. At the same time, it
requires investment in new assets and capabilities, such as market-specific research
and insights, local partners and suppliers, and government permits and licenses.<o:p></o:p></font></span></span></div>
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<b style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Verticals<o:p></o:p></font></span></span></b></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">In this dimension, the fundamental question is: “<i style="line-height: 1.15;">Whom else can we
target with our existing products?</i>” The growth thesis is: “<i style="line-height: 1.15;">There are
customer segments we do not serve today who have needs that can be met by our current
products and services; we can extend our offerings to them and generate new
revenues from these new customers.</i>”<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">As with geographic expansion, extending the business model to new
vertical segments is a “<i style="line-height: 1.15;">same products, new customers</i>” growth strategy.
And while geographic expansion looks to access the same customer segments but
in different locations, the vertical extension is about cultivating new
segments of customers in the same geography. <o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">This growth strategy requires developing knowledge of the needs and
preferences of new and different customers, and building new capabilities
(e.g., sales force, marketing, customer service) to win over and retain these
customers. It is de facto developing a loyal customer base from scratch, which
is far from simple. At the same time, it leverages the company’s investments
and success in building a compelling portfolio of products and services that
can meet the needs of a broad spectrum of customer segments.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">A B2C example of this growth strategy is a restaurant, a bar, or even a
museum, developing a corporate events offering. The original asset base and products
were designed to serve individuals and families in small groups, sometimes
celebrating an occasion with a larger party. The same asset base and product capabilities,
with minor (mostly marketing) tweaks, can be adapted into a new offering
targeting corporate event planners and office-party organizers, thus unlocking
a whole new set of (larger and less price-sensitive) pockets of dining and
party budgets.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Management consulting firms provide a good B2B example. Generally,
their intellectual capital and customer offerings are developed in the course of
client engagement within particular industries. They, then, ‘universalize’ and
repackage these same frameworks and methods, and apply them with clients across
other industries and vertical segments.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">For example, <font color="#3367d6">Booz Allen Hamilton</font>, founded in 1914, which coined foundational
business concepts such as ‘<i style="line-height: 1.15;">supply chain management</i>’ and ‘<i style="line-height: 1.15;">product
life-cycle management</i>, developed much of this groundbreaking management
science serving large industrial clients, such as <font color="#3367d6">Goodyear </font>Tire & Rubber
Company and the Canadian Pacific Railway. <span style="line-height: 1.15;"> </span>After World War II, applying the same
portfolio of intellectual capital, the firm expanded its clientele significantly
to include many large US government institutions, such as the Armed Forces and
the IRS. By the turn of the 21<sup style="line-height: 1.15;">st</sup> century, the overwhelming majority
of its revenues came from public-sector clients. In the past 10-15 years, the
firm has been able to replicate the same feat in reverse – adapting and introducing
concepts and techniques developed in the public sector, such as ‘<i style="line-height: 1.15;">wargaming</i>’,
to its private-sector corporate clients.<o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Strategy frameworks generally simplify a complex reality in order to
bring clarity and purity of thought. The Growth Cube is no exception – its three
dimensions describe three ‘<i style="line-height: 1.15;">mutually exclusive and collectively exhaustive</i>’
(<i style="line-height: 1.15;">MECE</i>) alternatives for growth. It is a useful method to reduce complex
alternatives to simpler, purer choices that are easier to analyze, prioritize,
communicate and rally around. In practice, the three growth strategies are
often intertwined or executed in tandem at least to some extent. For example, a
market entry into a new region or country is often accompanied by some product
adaptation or innovation to accommodate the cultural and economic preferences of
local customers. <o:p></o:p></font></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">It takes a nontrivial amount of focus and investment – fixed assets, talent,
know-how – to extend a company’s business across any one of the three axes and
drive meaningful growth. The Growth Cube framework is a useful tool to
visualize and analyze the alternative growth paths, envision risks and actions required
to succeed at each of them, and make the best choices in prioritizing the
growth strategies that the company is best equipped to execute successfully.<o:p></o:p></font></span></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></div>
<div class="separator" style="clear: both; line-height: 1.15; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: verdana;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgXgPpBued0g-gelIUcnmdW0dfTQFPWhcLgsdwwA9ROZSl_8ulFqpvLuDuhUvE3mImARcxLsFmiXqUVlg8DDA1fk6TEaB6O9-q7aGKd6yuGQm13kaPZobE4YcCs5dEE5RmvWpDFu2Z8hX33/" /></span></a></div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: verdana;"><br /></span></div></div>
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<br />Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com2New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-29402329745699581732020-06-08T11:43:00.016-04:002020-09-10T12:50:20.694-04:00 The Value Tree, Part 2: Using Shareholder Value to Unite and Prioritize the Corporate Portfolio of Strategic Initiatives<div class="separator" style="clear: both; line-height: 1.15; text-align: center;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_L3IbTSuavKA4kcFtkheRrBKn09wZT1wpYyIeoJRwF9BMmC-I7OFGoauKvN-I1-_vIZkM2aBsXIE6tzBk0ZwHGtNfxuFdRhD1I-f4r6RjPFQa6ERdtSXfCcoEySUGZ8e1NGGfs1BQDu4L/s1500/Valuation+3_bw.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="599" data-original-width="1500" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_L3IbTSuavKA4kcFtkheRrBKn09wZT1wpYyIeoJRwF9BMmC-I7OFGoauKvN-I1-_vIZkM2aBsXIE6tzBk0ZwHGtNfxuFdRhD1I-f4r6RjPFQa6ERdtSXfCcoEySUGZ8e1NGGfs1BQDu4L/w640-h256/Valuation+3_bw.png" width="640" /></a></div><br /></font></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Let’s talk some more about shareholder value.<o:p></o:p></font></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">More
specifically, applying <i style="line-height: 1.15;">The Value Tree</i> strategic framework, which I adapted
from the popular enterprise valuation formula, to identify, coordinate and
prioritize initiatives and investments that create shareholder value.<o:p></o:p></font></span></div>
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<font face="verdana" style="line-height: 1.15;"><br /></font></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">In <span style="line-height: 1.15;"><a href="https://www.expertscoop.com/2020/06/value-tree-part-1.html" style="line-height: 1.15;">Part 1 of this two-part series</a></span>, I introduced the Value Tree framework (see Figure
1). And in this article, I delve into each element of the framework to demonstrate
how it can be used by strategy professionals to organize corporate initiatives
into a cohesive portfolio and assign them priority based on their quantifiable potential
to create meaningful shareholder value. <o:p></o:p></font></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><o:p style="line-height: 1.15;"><span style="line-height: 1.15;"> </span></o:p><span style="font-family: verdana; font-size: small; line-height: 1.15;"> </span></font></span></div>
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<o:p style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span face="verdana, sans-serif"></span></font></span></o:p></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">To apply The
Value Tree framework, one just needs to work their way down from the top, translating
broad objectives into narrower goals, and ultimately into specific actions, projects
and initiatives. And once the lower-level activities have been identified, and
their expected results and KPIs defined, it becomes possible to quantify their
impact on shareholder value, and therefore assign them relative priority.
Conversely, one can also start with existing initiatives, and identify where on
the Value Tree do they belong and estimate how much shareholder value they would
create.<o:p></o:p></font></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">For example,
let’s consider a company with $100M in EBITDA, trading at a multiple of 5. It’s
currently worth $500M. An initiative, say entering a new market, that delivers
an incremental $20M in EBITDA is worth $100M in newly created shareholder
value. Another initiative, say, a rebranding campaign that changes the image of
the company from an ‘industry dinosaur’ to a ‘digital innovator’, would raise its
valuation multiple to 8, thus creating shareholder value of $300M. Execute both
successfully, and their joint impact is compounded to $460M, which includes $60M
in synergy between the two initiatives.<o:p></o:p></font></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Let’s dive
in one tier at a time. <o:p></o:p></font></span></div>
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<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><o:p style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><font style="line-height: 1.15;"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfjKGyHAxczATLTAg6GXD4DeLA-ubHm_pDOvuiCY9x4ocYU8S6BgEDeUtkbQwCohAjaPeC9UwGRIp9OWHXhjEpOKaOFps7nwjgKB_jODKWgMtZTfa52Pfrxe6BYIisVTVuUY8sQD3BXlkq/s1500/Value+Multiple.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="848" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfjKGyHAxczATLTAg6GXD4DeLA-ubHm_pDOvuiCY9x4ocYU8S6BgEDeUtkbQwCohAjaPeC9UwGRIp9OWHXhjEpOKaOFps7nwjgKB_jODKWgMtZTfa52Pfrxe6BYIisVTVuUY8sQD3BXlkq/w640-h362/Value+Multiple.png" width="640" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><font size="2"><b>Figure 1. </b>The Value Tree - a Strategic Framework for Managing the Corporate Initiatives Portfolio<br /></font><span style="font-size: small; text-align: left;"> </span></td></tr></tbody></table></font></font></span></o:p></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><b style="line-height: 1.15;">EBITDA</b><o:p></o:p></font></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This is the
more ‘straightforward’ half of the framework. It deals in objective, observable
numbers. It captures initiatives that have <i style="line-height: 1.15;">immediate</i>, <i style="line-height: 1.15;">measurable</i>
and <i style="line-height: 1.15;">direct</i> impact on EBITDA. Any initiative that is immediately (or at
least very quickly) accretive to the operating profit of the company belongs
here. <o:p></o:p></font></span></div>
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<font face="verdana" style="line-height: 1.15;"><br /></font></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Just like
the multiple valuation method that it was inspired by, the Value Tree framework
takes a static snapshot of EBITDA in the present moment, and any initiatives
that are expected to deliver future EBITDA growth, but are not immediately additive,
are reflected on the Multiple side. <o:p></o:p></font></span></div>
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<font face="verdana" style="line-height: 1.15;"><br /></font></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">There are
two distinct value-creation philosophies that investors follow when they
evaluate businesses strategically: either increase EBITDA by <i style="line-height: 1.15;">expanding</i>
the existing business (via M&A, new products, new clients, new geographies,
etc.) or increase EBITDA by <i style="line-height: 1.15;">optimizing</i> the existing business (via cost
cutting, revenue yield management, pricing strategies, etc.)<o:p></o:p></font></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="font-size: small; line-height: 1.15; text-indent: -0.25in;"><span style="font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.15;"><b style="line-height: 1.15;">G</b></span></span><b style="line-height: 1.15; text-indent: -0.25in;">rowth</b></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15; text-indent: -0.25in;"><font face="verdana" style="line-height: 1.15;">Initiatives that increase operating profits by growing the revenue base of the
business, while creating cost synergies, belong here. These include expanding its
client base, product portfolio, market penetration, etc. Companies pursue this
kind of EBITDA expansion in one of two ways:</font></span></div>
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<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><b style="line-height: 1.15; text-indent: -0.25in;">Inorganic</b> </font></span></div>
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<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This is the realm of the corporate
development function, including M&A, joint ventures and strategic
alliances. The motivations for most inorganic investments generally fall in one
of two buckets:</font></span></div>
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</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Scale</font></span></b></div>
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<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">These acquisitions add volume from an
existing business to a company’s own revenue base by combining businesses that generate
EBITDA from the same or similar products, but access complementary clients,
verticals, and geographies. Since the underlying product and operational
capabilities are highly complementary, that also unlocks further synergies by eliminating
duplicative cost structures.</font></span></div>
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</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Innovation</font></span></b></div>
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<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This type of M&A is about
acquiring capabilities that the company does not currently have and deems economically
infeasible to develop internally. This includes buying new product
capabilities, technologies and intellectual property that are already
generating positive EBITDA.</font></span></div>
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</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Organic</font></span></b></div>
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<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Alternatively, companies choose to cultivate
growth organically, especially when they are capable and confident of their internal
capabilities. Such initiatives fall in two broad buckets:</font></span></div>
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<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span face="verdana, sans-serif" style="line-height: 1.15; text-indent: -0.25in;"><b style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Supply</font></b></span></div>
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<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15; text-indent: -0.25in;"><font face="verdana" style="line-height: 1.15;">This is where product research and development
(R&D) initiatives reside. They entail studying customer needs and satisfaction,
creating new products and services, features and variants, and rolling them out
into the marketplace rapidly and successfully. This is also where many business
development initiatives fall, especially those focused on new customer offerings
via commercial and strategic partnerships and on the creation of marketplace ecosystems
that unlock new client-facing capabilities and secure access to new product inventories.
Finally, here I include initiatives that ‘productize’ assets and capabilities
the company was not previously providing (think a museum launching a corporate
events offering or a large retailer creating its own digital media network).</font></span></div>
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</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Demand</font></span></b></div>
</blockquote>
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</blockquote>
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<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This is the domain of new client
acquisition, primarily driven by the sales function. It encompasses a broad set
of initiatives that open up new geographies and industry verticals, attract and
win new customers and contracts, and generally create greater distribution for
the company’s existing products. Some of this expanded distribution comes in
the form of channel partnerships with other industry players, driven jointly by
business development and sales.</font></span></div>
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<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Yield</font></span></b></div>
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<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="font-size: small; line-height: 1.15; text-indent: -0.25in;">Here I capture initiatives that generate incremental EBITDA by optimizing and
fine-tuning the existing business. This is the world of best practices,
benchmarks, process and data standardization. Generally, it’s about helping the
company become an EBITDA ‘elite athlete’ within its existing industry and
product portfolio. I follow the basic formula “</span><i style="line-height: 1.15; text-indent: -0.25in;">Profit = Revenue – Cost</i><span style="font-size: small; line-height: 1.15; text-indent: -0.25in;">”
to split this area in two buckets:</span></font></span></div>
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</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Revenue</font></span></b></div>
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<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="font-family: verdana; font-size: small; line-height: 1.15;">This is where I categorize traditional sales
productivity and performance marketing initiatives, including all promotional
activity. It is also the realm of revenue optimization and yield management. It’s
about squeezing a few extra drops of revenue ‘juice’ from the existing client base
and product portfolio, but when done at scale, results in meaningful EBITDA
enhancement. The travel and hospitality industries pioneered and perfected this
discipline, and the same principles and techniques are now applied across
industries. I use the formula “</span><i style="line-height: 1.15;">Revenue = Volume x Price</i><span style="font-family: verdana; font-size: small; line-height: 1.15;">” to break this space
into two components:</span></font></span></div>
</blockquote>
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<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Volume</font></span></b></div>
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<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Volume optimization initiatives motivate
customers to purchase more of the same or try new products. All promotions up
and down the marketing funnel, including price discounts, product bundling, sampling,
free trials, loyalty schemes, etc. reside here.</font></span></div>
</blockquote>
</blockquote>
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<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Price</font></span></b></div>
</blockquote>
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</blockquote>
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<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="font-family: verdana; font-size: small; line-height: 1.15;">Price optimization is all about
increasing the </span><i style="line-height: 1.15;">average</i><span style="font-family: verdana; font-size: small; line-height: 1.15;"> unit price the company extracts from existing
customers for its existing products. Sometimes it’s about repricing and price
increases, but most of the time these initiatives are about upselling,
converting to premium, and changing the product mix the customer buys. This is
also where new ‘monetization’ efforts would fall. These are initiatives that introduce
a price for products, services or features the company was heretofore providing
for free (think charging for checked luggage or imposing account inactivity
fees).</span></font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Cost</font></span></b></div>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="font-family: verdana; font-size: small; line-height: 1.15;">This is the area everyone, except
private equity firms and restructuring consultants, love to hate. But cost
management is a powerful tool for boosting EBITDA and creating shareholder
value. There are many frameworks developed and applied by various consulting firms
that specialize in cost optimization. For simplicity, I used the formula “</span><i style="line-height: 1.15;">Cost
= Variable + Fixed</i><span style="font-family: verdana; font-size: small; line-height: 1.15;">” to divide this area into two parts:</span></font></span></div>
</blockquote>
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<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Variable</font></span></b></div>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This is the world of procurement professionals,
inventory optimization, demand management, waste reduction, commission
structures, and a number of other disciplines specialized in reducing the cost
per unit sold companies incur. Any initiative that tackles cost of goods sold,
variable labor, cost of inventory or variable commissions belongs in this
bucket.</font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Fixed</font></span></b></div>
</blockquote>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Here I capture initiatives that
tackle large cost buckets, such as office space and other real estate, overhead
labor and benefits, production, infrastructure and office equipment, utilities,
insurance, intellectual property development, etc. Increasingly, companies are switching
to business structures and operating models that ‘variablize’ these
traditionally fixed costs (think WeWork office space, fixed assets sale-leaseback
transactions, outsourcing entire support functions, etc.)</font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<b style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Multiple<o:p></o:p></font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This side of
the framework is more about art, intuition and judgment – and of course, comparisons
with similar companies. It encompasses both somewhat quantitative and
predictable factors, such as tax planning and capital structure, as well as
highly subjective ones, such as perceived competitive advantages, economic
moats, anticipated future growth, and quality of leadership. Collectively,
these factors get ‘mashed up’ into a single number that levers up or down the
value of the business operation. Generally, initiatives whose impact on
operating profits is either hard to quantify or is realized over a longer-term horizon
belong here.<o:p></o:p></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<font face="verdana" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">I divide the
Multiple factor into two principal categories: one that’s more subjective and unstructured,
and one a bit more formulaic and quantifiable.</font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Appeal</font></span></b></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="font-size: small; line-height: 1.15; text-indent: -0.25in;">As the name indicates, this is the most subjective category. The best way to
think about it is in terms of the two principal (and generally, </span><i style="line-height: 1.15; text-indent: -0.25in;">irrational</i><span style="font-size: small; line-height: 1.15; text-indent: -0.25in;">)
motivators of investor actions: </span><i style="line-height: 1.15; text-indent: -0.25in;">greed and fear</i><span style="font-size: small; line-height: 1.15; text-indent: -0.25in;">, which is how I divide this
element of the framework:</span></font></span></div>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Assets</font></span></b></div>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="font-family: verdana; font-size: small; line-height: 1.15;">This is a pretty broad bucket. It encompasses everything a company possesses that gets investors excited and eager to reach for
their wallets. All proprietary, hard-to-replicate, scarce assets and resources,
both physical and intellectual, that a company can leverage to beat out the
competition, extract greater ‘</span><i style="line-height: 1.15;"><a href="https://en.wikipedia.org/wiki/Economic_rent" style="line-height: 1.15;">economic rents</a></i><span style="font-family: verdana; font-size: small; line-height: 1.15;">’, and
generate future growth belong here.</span></font></span></div>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Intangible</font></span></b></div>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This is probably the single most
impactful element in the entire framework. Investors’ perceptions of a company’s
intangible assets and competitive advantages can sway the market multiple significantly.
The reasons why some companies command stratospheric P/E ratios (e.g., 110x for
<font color="#3367d6">Amazon </font>or 31x for <font color="#3367d6">Google</font>) are all baked into this bucket of intangible assets
and capabilities that investors perceive these companies possess. Initiatives
that add to this endowment of prized assets belong here. These include organic
and inorganic investments in intellectual property (e.g., brand-building, patents,
trademarks, proprietary R&D, creative content, and software code), human
capital (e.g., culture-building, talent recruiting and development, and a high-quality
C-suite and leadership bench), and proprietary contracts and relationships
(e.g., exclusive licenses, activation and distribution rights, first-party consumer
audiences, client lists and direct buyer relationships).</font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Tangible</font></span></b></div>
</blockquote>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Traditional and physical assets that
differentiate and enable the company to grow and outperform competitors belong here.
Some examples are: real estate, equipment, and other property, as well as all varieties
of financial assets. Initiatives that acquire, develop and enhance these assets
(e.g., leasehold improvements, equipment upgrades, capital acquisitions, investments
in production, logistics and distribution networks) are included in this category.</font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Risks</font></span></b></div>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This is the inverse of the Assets
category. It captures everything, either within the company or in its external environment,
that would damage or undermine its chances of delivering the expected EBITDA
and growth. Risks (and uncertainties) get investors spooked and cause them to
discount the present value of the company. All initiatives that mitigate such
risks belong here.</font></span></div>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Internal</font></span></b></div>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Risks that emanate from within the
company and how it operates reside here. These include compliance risks,
operational risks, reputational risks, key-person risks, credit risks,
liquidity risks, etc. Any initiatives that either prevent, mitigate or help
recover from the impact of these risks (e.g., process controls, leadership
succession plans, process and supply redundancies) fall within this area.</font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">External</font></span></b></div>
</blockquote>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Risks that originate outside of the
company, presented by external players and environmental factors, belong here.
For example, competitive threats, regulatory burdens, market or political
unrest and uncertainty, supply-chain disruptions, legal actions taken by
competitors, customers or suppliers, etc. Initiatives that tackle these external
risks (e.g., business continuity plans, competitive intelligence, market analyses,
strategic and marketing plans) are categorized here.</font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Structure</font></span></b></div>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15; text-indent: -0.25in;"><font face="verdana" style="line-height: 1.15;">Since EBITDA is calculated before interest and tax, it doesn’t reflect any benefits
(or burdens) created by the company’s incorporation, capitalization, legal or
tax structure. These factors are all baked into the multiple. Different corporate
and financial structures can have both quantitative, measurable (tax-related) effects
on shareholder value, as well as qualitative, perceptional effects. I organize
these structures into two buckets, one related to how the business is
organized, and governed, and the other, to how it is funded:</font></span></div>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Corporate</font></span></b></div>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This area includes everything to do
with how the company is incorporated, owned, organized, and governed.</font></span></div>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Ownership</font></span></b></div>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="font-family: verdana; font-size: small; line-height: 1.15;">Where and how a company is
incorporated and what ownership structure it has (e.g., Delaware vs. Cayman Islands,
public vs. private, standalone business vs. holding vs. subsidiary) are factors
that have an impact on shareholder value. </span><i style="line-height: 1.15;">Who</i><span style="font-family: verdana; font-size: small; line-height: 1.15;"> the owners are (e.g., founders
vs. a family vs. financial sponsors vs. strategic investor) can also impact its
multiple, and thus, its worth. Initiatives that aim to create shareholder value
by manipulating business structure, ownership composition and corporate organization
(e.g., spinoffs, takeovers, reverse mergers, reincorporations) are captured in
this area.</span></font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Governance</font></span></b></div>
</blockquote>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">In addition to how it is organized
and owned, how a company is overseen and governed is another qualitative factor
that impacts its multiple and valuation. This includes how formal and transparent
its board of directors (BOD) and management structures and processes are and
whether individual players (e.g., charismatic founders, long-serving CEOs,
family members of family-owned businesses) have undue or outsized influence and
control. Initiatives that strengthen these elements (e.g., independent director
appointments, BOD process redesigns) belong here.</font></span></div>
</blockquote>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Capital</font></span></b></div>
</blockquote>
</blockquote>
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;">
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This is the domain of corporate
financiers, investment bankers and private equity professionals. The mix of
equity and debt financing, the choice of instruments, and the total cost of
capital are meaningful levers of shareholder value.</font></span></div>
</blockquote>
</blockquote>
<div style="line-height: 1.15;">
</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Equity</font></span></b></div>
</blockquote>
</blockquote>
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<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">The level of equity financing, the
mix of instruments (e.g., shares, options, warrants), the levels of priority,
restrictions, and voting rights are all elements of the capital structure that
impact shareholder value. Initiatives that affect the company’s equity cap table
(e.g., equity raises, share repurchases, stock options grants) belong in this
area.</font></span></div>
</blockquote>
</blockquote>
</blockquote>
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</div>
<div style="line-height: 1.15;"><font face="verdana"> </font></div><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><blockquote style="border: none; line-height: 1.15; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><b style="line-height: 1.15; text-indent: -0.25in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Debt</font></span></b></div>
</blockquote>
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<span face="verdana, sans-serif" style="font-size: small; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">There are many reasons why corporate
finance professionals and private equity investors like debt – it helps multiply
(‘lever up’) the return on equity investment, it provides a tax shield since
interest is tax deductible, and it keeps the management team disciplined and focused
on operating profits, which are used to make ongoing debt service payments. Too
much debt, however, strains the company’s cash flows and can force even good
businesses into bankruptcy. Which is why high leverage ratios can create
negative perceptions among creditors, vendors and clients, and erode
shareholder value. Initiatives that relate to the company’s debt levels and
structure (e.g., refinancing, recapitalizations, leveraged buyouts, debt restructuring,
bankruptcies) fall within this bucket.</font></span></div>
</blockquote>
</blockquote>
</blockquote>
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<o:p style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></o:p></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">There are
two principal benefits of applying the Value Tree technique: First, it allows
strategy professionals to take an existing corporate portfolio of initiatives
that exist in disparate corners of the organization and unify them under one centralized
and cohesive strategic narrative and governance process. Second, it applies a ‘single
currency’ – shareholder value – to assess the ‘<i style="line-height: 1.15;">size of the prize</i>’, and
therefore the <i style="line-height: 1.15;">priority</i>, of each initiative, which can be calculated fairly
objectively either by measuring the immediate accretive EBITDA of the
initiative or by estimating (through the use of market comps) its impact of the
valuation multiple.<o:p></o:p></font></span></div>
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<font face="verdana" style="line-height: 1.15;"><br /></font></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">The Value
Tree framework is a useful universal tool for CSOs and their teams. But it is not
intended to replace the strategic plan or vision or narrative that the
leadership team may have already developed – it should be used <i style="line-height: 1.15;">alongside</i>
these other strategy tools to help organize, prioritize and create consistent
process and standards to manage the corporate portfolio of strategic
initiatives. <o:p></o:p></font></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: verdana;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmY6QqawNMgcuazmNLGKM2gSM8NvcQ53hfATf4ljM2v6riQx4Rf9e_KyQGQzTCZLDTY9vUhkC0tW17C6hQ8JDY4Gt2lCsQ5LNxSWUKLQuO1AqNWzQMAv4t6ry3cfSaAtEk_WGEalD8e3xF/" /></span></a></div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: verdana;"><br /></span></div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: verdana;"><br /></span></div><div class="separator" style="clear: both; text-align: center;"><font face="verdana"><br /></font></div><div style="text-align: center;"><br /></div>Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com2New York, NY, USA40.7127753 -74.0059728-12.35335361698143 -144.3184728 90 -3.693472799999995tag:blogger.com,1999:blog-4046236588836115162.post-12530265347094991022020-06-06T18:30:00.016-04:002020-06-23T11:56:14.910-04:00The Value Tree, Part 1: A Corporate Strategy Framework Inspired by a Popular Valuation Technique<div style="line-height: 1.15; text-align: left;">
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<span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2l4V2PlgqvDXqlsWUHOdfhDo7C0AP2e8Myx5ukzG5sP5AvGniDOQ6x2aXbnu1leuHqcIi7opWdFa09_LwEk6AbipdhBtppzgU2mX5yegTj9Y74w-d5IkqP6sNVjNleoh9rwRfL_3UHi2_/s960/Valuation+2_bw.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="384" data-original-width="960" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2l4V2PlgqvDXqlsWUHOdfhDo7C0AP2e8Myx5ukzG5sP5AvGniDOQ6x2aXbnu1leuHqcIi7opWdFa09_LwEk6AbipdhBtppzgU2mX5yegTj9Y74w-d5IkqP6sNVjNleoh9rwRfL_3UHi2_/w640-h256/Valuation+2_bw.png" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div>Let’s talk
about shareholder value.<o:p></o:p></font></span></div>
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<span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2">More
specifically, a simple and practical strategic framework (<i style="line-height: 1.15;">The Value Tree</i>)
adapted from a popular enterprise valuation heuristic, which can be used to identify,
coordinate and prioritize initiatives and investments that create shareholder
value.<o:p></o:p></font></span></div>
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<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><font face="verdana" size="2"><span style="font-family: verdana; font-size: small;">This article
is Part 1 of a two-part series. Here, I introduce the Value Tree framework. And
</span><span style="font-family: verdana; font-size: small; line-height: 1.15;"><a href="https://www.expertscoop.com/2020/06/value-tree-part-2.html">in Part 2, I delve into its elements to showcase its application</a></span><span style="font-family: verdana; font-size: small;">. This
series is </span><i style="font-family: verdana; font-size: small; line-height: 1.15;">not</i><span style="font-family: verdana; font-size: small;"> about valuation methodologies. Rather, it’s about adapting
the simple valuation formula into a strategic framework that isolates the principal
drivers of shareholder value, and using it to organize, prioritize and even
quantify different strategic initiatives based on their potential to deliver measurable
shareholder value growth. It’s a handy, and universally applicable, tool for
strategy professionals to tie together the numerous, and often disconnected, corporate
initiatives into a cohesive and coordinated portfolio. And tie everything back
to (what should be) the number-one goal of every corporate executive: creating
shareholder value.</span></font></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><font face="verdana" size="2"><br /></font></div><a name='more'></a><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><font face="verdana" size="2"><span style="font-family: verdana; font-size: small;">As I suggested in my recent article on </span><a href="https://www.expertscoop.com/2020/05/strategy-3D.html" style="font-family: verdana; font-size: small; line-height: 1.15;">the value of the strategy function, and the capabilities needed to realize it</a><span style="font-family: verdana; font-size: small;">, the main purpose of the Chief Strategy Officer (CSO) and the strategy group is to provide the rest of the organization a </span><b style="font-family: verdana; font-size: small; line-height: 1.15;">compelling and consistent north star</b><span style="font-family: verdana; font-size: small;">. And to realize that purpose, they must deliver:</span></font></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"></div><ol style="text-align: left;">
<li><span style="font-family: verdana, sans-serif;"><font face="verdana" size="2"><b style="line-height: 1.15; text-indent: -0.25in;">Clarity</b><span style="font-size: small; text-indent: -0.25in;"> of values, vision, mission,
objectives, and near-term execution plan; and</span></font></span></li><li><span style="font-family: verdana, sans-serif;"><font face="verdana" size="2"><b style="line-height: 1.15; text-indent: -0.25in;">Coordination</b><span style="font-size: small; text-indent: -0.25in;"> of narratives, agendas,
initiatives, KPIs, processes and execution activities</span></font></span></li>
</ol>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span style="font-family: verdana; font-size: small;"><font face="verdana" size="2"><br /></font></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span style="font-family: verdana; font-size: small;"><font face="verdana" size="2">The
challenge most companies (and their CSOs) face is that corporate initiatives
are often born reactively in different corners of the organization, without necessarily
being unified by a common vision, narrative or overarching plan. An M&A
deal led by one business unit, a new product development led by another unit, a
PR campaign led by marketing, a cost optimization effort led by finance may all
be happening at the same time and appear to be of equal strategic importance.
How does the CSO tie them together in a cohesive story? And how does the leadership
team determine if they are indeed of equal importance?</font></span></div>
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<span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2">In addition,
as strategy is seen as less ‘<i style="line-height: 1.15;">formulaic</i>’ or <i style="line-height: 1.15;">structured</i> of a
discipline than, say, finance, HR or even sales, a newly hired CSO often starts
from scratch, without a universal playbook or a set of standard tools and
processes. After all, shouldn’t the strategy be unique to the company, the
industry, the moment in time, the leadership team? And therefore, should be a
<i>tabula rasa </i>and developed <i>de novo </i>each time, without a preestablished formula,
method or process? The answer to the first question is, of course, ‘<i style="line-height: 1.15;">yes</i>.’
But I believe the answer to the second question is ‘<i style="line-height: 1.15;">definitely no</i>.’</font></span></div>
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<span style="font-family: verdana, sans-serif;"><font face="verdana" size="2"><span style="font-family: verdana; font-size: small;">There’s one
thing that is fundamentally and universally true of all companies and their leadership
teams, in any industry circumstance and any moment in time. A sort of a ‘</span><b style="line-height: 1.15;"><i style="line-height: 1.15;">first
principle</i></b><span style="font-family: verdana; font-size: small;">’ of corporate strategy. And that is that everything corporate
teams do </span><i style="line-height: 1.15;">should be creating incremental shareholder value</i><span style="font-family: verdana; font-size: small;"> – that is,
making their company more valuable in the eyes of investors. Conversely,
creating shareholder value should dictate everything they do.</span></font></span></div>
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<span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2">Regardless
of the project or initiative, and who sponsored it, how complex it is, whether it
aims to deliver ‘<i style="line-height: 1.15;">hard</i>’ numbers or ‘<i style="line-height: 1.15;">soft</i>’ qualitative results – if
it can deliver meaningful shareholder value, then it should be prioritized. If
it cannot, then why are scare corporate resources expended on it? Even initiatives
that help a company advance its strategic story in qualitative ways can, and
should, be held to the same standard.<o:p></o:p></font></span></div>
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<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2">Anyone who has worked in investment banking or private equity, or has ever bought or sold a business, which includes trading shares on the public stock markets, is (or should be) well familiar with valuation multiples – one of the more simplistic, yet disarmingly useful, techniques for determining what a company is worth. The simple formula of “Enterprise Value = EBITDA x Multiple” is a nifty <i style="line-height: 1.15;">black box</i> that combines various factors – both quantitative and qualitative, objective and subjective, measurable and mysterious – to provide a quick answer that otherwise financial analysts derive from massive and complex financial models.<o:p></o:p></font></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2"><br /></font></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;">
<span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2">The Value
Tree framework I propose (see Figure 1) makes use of the popular valuation formula:
<b style="line-height: 1.15;">Value = EBITDA x Multiple</b> to create a universal recipe for identifying, prioritizing
and connecting corporate initiatives into a cohesive strategic story. <o:p></o:p></font></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><font face="verdana" size="2"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgeXywc9ai2U0IWzzbf0UaWjWx9-d9eddARJ37kvFZvXrNnzAjaKYp8sRWt1UIgu27crST9vahpX9agAG5TWMs0P3whPBO8TdDySS2x23TA3676_T9dtV24Q_WaZHhP0vl3V3c5eczwzypk/s1500/Value+Multiple.png" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="848" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgeXywc9ai2U0IWzzbf0UaWjWx9-d9eddARJ37kvFZvXrNnzAjaKYp8sRWt1UIgu27crST9vahpX9agAG5TWMs0P3whPBO8TdDySS2x23TA3676_T9dtV24Q_WaZHhP0vl3V3c5eczwzypk/w640-h362/Value+Multiple.png" title="The Value Tree - a Strategic Framework for Managing the Corporate Initiatives Portfolio" width="640" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><font size="1"><span style="font-size: x-small; text-align: left;"><b>Figure 1. </b>The Value Tree - a Strategic Framework </span><span style="font-size: x-small;">for Managing the Corporate Initiatives Portfolio</span><br style="font-size: x-small;" /></font></td></tr></tbody></table></font></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><font face="verdana" size="2"><span style="font-size: small;"><br /></span></font></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt;"><font face="verdana" size="2"><span style="font-size: small;">The </span><i style="font-size: small; line-height: 1.15;"><a href="https://en.wikipedia.org/wiki/Valuation_using_multiples" style="line-height: 1.15;">multiples-based
valuation method</a></i><span style="font-size: small;"> simply postulates that a company’s worth is equal to
the operating profit it generates times a </span><i style="font-size: small; line-height: 1.15;">subjective factor</i><span style="font-size: small;"> of how
attractive investors believe these operating cash flows to be (compared to,
say, another company that generates the same cash flows). One (EBITDA) is based
on objective, measurable </span><i style="font-size: small; line-height: 1.15;">reality</i><span style="font-size: small;">; the other (multiple) on subjective, ambiguous
</span><i style="font-size: small; line-height: 1.15;">perception</i><span style="font-size: small;">.</span></font></div>
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<span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2">The power of
this methodology is in its <i style="line-height: 1.15;">simplicity</i> and its <i style="line-height: 1.15;">universality</i>. It
reflects how things generally work in life and nature. A blend of seemingly
clashing, yet mutually reinforcing, dichotomies – science vs. art, rationality
vs. emotions, right brain vs. left brain, evidence vs. judgment, facts vs.
beliefs... The answer inevitably is: <i style="line-height: 1.15;">it’s a combination of these diametrical
factors</i>.<o:p></o:p></font></span></div>
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<span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2">This
framework, especially below its second tier, is not completely set in stone –
it can be customized and adapted to be even more relevant to a particular
business. The top two tiers will always be the same, based on the ‘<i style="line-height: 1.15;">Value = EBITDA
x Multiple</i>’ formula. But how CSOs choose to decompose EBITDA or isolate
what drives the multiple is somewhat open to creative interpretations and
analytical adaptations. My version here is what I believe is the most universal,
easily understood, and broadly applicable adaptation of the framework. It is
also my best attempt are making it a <a href="https://en.wikipedia.org/wiki/MECE_principle" style="line-height: 1.15;">mutually exclusive and
collectively exhaustive (MECE)</a> construct – as all good strategic frameworks
should be.<o:p></o:p></font></span></div>
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<font face="verdana" size="2"><span style="font-family: verdana, sans-serif; line-height: 1.15;">In <span style="line-height: 1.15;"><a href="https://www.expertscoop.com/2020/06/value-tree-part-2.html">Part 2 of this series</a></span>, I'll dive into the Value Tree framework one tier at a time,
and demonstrate how it can be applied by strategy executives to organize all corporate
initiatives into a cohesive portfolio and assign them priority based on their
potential to generate measurable shareholder value. </span></font></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt; text-align: center;"><font face="verdana" size="2"><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEieyaf8_3sE7H5Yn1_ENFJRNeL0QbkzcVYmcEvEJoefEOQWUCCP0PeKUipIQKlPj4J5A9jn3ivAk6rMAEESDV7FtJwkiwJpAVV_niSnswdJR98cvPYrHtMCPBuFFeGT1nTlcJLjFGYD9F1O/" /></a></div><span style="font-family: verdana, sans-serif; line-height: 1.15;"><br /></span></font></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0.0001pt; text-align: center;"><span style="font-family: verdana, sans-serif; line-height: 1.15;"><font face="verdana" size="2"><br /></font></span></div>
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Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com1New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995tag:blogger.com,1999:blog-4046236588836115162.post-73410276938235146682020-05-29T13:08:00.050-04:002020-09-10T12:51:25.502-04:00Principal Axes: The Three Capability Dimensions That Propel Corporate Strategy<div class="separator" style="clear: both; text-align: center;">
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<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Let’s talk about strategy.<o:p></o:p></font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">More specifically, corporate strategy as a functional discipline, the fundamental
value it creates (or should create) for an organization and its people, and the
capabilities it requires in order to succeed.<o:p></o:p></font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">This article is the first in a series that looks at strategy pragmatically, from a business operator’s point of view, and explores some practical, proven recipes to create and utilize a corporate strategy function that drives meaningful value. It’s my humble contribution to introducing some standards, common frameworks and best practices for strategy as a functional discipline. In this piece, I focus on the fundamental purpose and value of strategy, and I introduce the 'Principal Axes' framework to showcase the capabilities that need to be in place to realize that </font></span></span></span></span><span style="font-family: verdana; font-size: small;">purpose and value</span><span style="font-family: verdana; font-size: small;">.</span></div>
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<div style="line-height: 1.15; text-align: left;"><span style="font-family: verdana;"><br /></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;"><a name='more'></a><div style="text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="line-height: 1.15;"><font face="verdana"><i><span style="line-height: 1.15;">Strategy</span> </i>is one of those words that everyone likes to use (a lot!), yet everyone ends up interpreting and applying it in their own way, to a point that its meaning – and value – is often completely lost. The same is true for strategy as a business discipline.</font></span></span></span></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">The lack of commonly understood and accepted definitions and standards in the realm of corporate strategy causes companies to miss out on the value they should be able to derive from the strategy function. Common standards, frameworks, processes and metrics are applied to all other horizontal functions – from finance to HR to operations to IT to sales and marketing. Strategy should not be an exception.<o:p></o:p></font></span></span></span></span></span></span></div>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><span style="line-height: 1.15;">Plenty has been written about strategy by illustrious business thinkers
and decorated practitioners. Harvard’s compilation book “</span><a href="https://store.hbr.org/product/hbr-s-10-must-reads-on-strategy-including-featured-article-what-is-strategy-by-michael-e-porter/12601" style="line-height: 1.15;">HBR's
10 Must Reads on Strategy</a><span style="line-height: 1.15;">” offers a pretty good ‘tasting menu’ of the most
influential writings on strategy. Porter’s Five Forces. Mintzberg’s 5P’s. The
Balanced Scorecard. The Blue Ocean Strategy. Even Dilbert chimes in with a succinct
view of </span><a href="https://www.youtube.com/watch?v=U6DE93esEug" style="line-height: 1.15;">what it means to
be a company with a strategy</a><span style="line-height: 1.15;">. It’s easy to get lost in all the frameworks
and catchphrases. But what should strategy as a function really do, how should
it do it, and what does it need to succeed?</span></font></span></span></div>
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<span face="verdana, sans-serif" style="font-size: small;"><font face="verdana">In my view, the most practical way to summarize all this theoretical
exploration is as follows:</font></span></div>
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</font></span></div>
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<b style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">I. Purpose<o:p></o:p></font></span></span></span></span></b></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">The fundamental purpose of the strategy function is to provide the
organization with a compelling and consistent <b style="line-height: 1.15;"><i style="line-height: 1.15;">north star</i></b> that helps
people up and down the chain of command make the right decisions and take the
right actions at any moment – decisions and actions that help the company
advance toward achieving its long-term objectives. <o:p></o:p></font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
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<b style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">II. Jobs<o:p></o:p></font></span></span></span></span></b></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">In order to fulfill this purpose, the strategy function, when deployed
effectively, does the following two critical jobs for the organization. It provides:</font></span></span></span></span></div>
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<ol style="line-height: 1.15;">
<li style="line-height: 1.15; text-align: left;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><b style="line-height: 1.15; text-indent: -0.25in;">Clarity</b><span style="line-height: 1.15; text-indent: -0.25in;">
of core values, vision, mission, objectives, and near-term execution plan</span></font></span></span></span></span></li>
<li style="line-height: 1.15; text-align: left;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><b style="line-height: 1.15; text-indent: -0.25in;">Coordination
</b><span style="line-height: 1.15; text-indent: -0.25in;">of narratives, agendas, initiatives, KPIs, processes and execution
activities</span></font></span></span></span></span></li>
</ol>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Clarity of purpose, vision and objectives sounds like an obvious
necessity for any company, but it is startling how often it is completely
lacking, despite capable leadership, motivated employee base, and a strong, profitable
business. I have walked into formidable Fortune 500 companies as a strategy consultant
and found complete and utter discord – each C-suite member telling a different strategic
story, EVPs and SVPs struggling to define the strategic narrative for their organizations,
expensive acquisitions made without clarity of strategic thesis or path to incremental shareholder
value.</font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">It’s the job of the Chief Strategy Officer (CSO) and the strategy function
to work top-down with the CEO and conduct the bottom-up internal and external analyses
to define and distill the strategic vision and objectives, and make them crystal-clear
and readily available to the entire organization.<o:p></o:p></font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Having unified vision and objectives is one thing. Having coordinated
and disciplined processes to communicate and execute on the vision is another
thing altogether. Most companies do that quite poorly. Executing priority initiatives
and delivering against KPIs is often left to individual business units and
horizontal functions, each usually having very different levels of project management
and execution capabilities.</font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">A central group accountable directly to the
C-suite, a corporate project management office (PMO), that oversees, harmonizes
and coordinates strategic initiatives across the organization, is a rarity. PMOs
are commonplace across IT organizations and as part of large transformation efforts, usually facilitated by a large consulting firm. The same value they
provide for these technical programs should also be unleashed to coordinate the
CEO’s portfolio of corporate strategy initiatives. The corporate PMO should be
a standard component of any CSO’s responsibilities and org structure.<o:p></o:p></font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><span style="line-height: 1.15;">Doing these two critical jobs</span><span style="line-height: 1.15;"> (i.e., </span><span style="line-height: 1.15;">providing clarity and coordination)</span><span style="line-height: 1.15;"> </span><span style="line-height: 1.15;">well
can create focus and consistency of business outcomes. Even more importantly, it
can generate significant momentum and excitement for the company’s strategy
both internally and in the marketplace, energize employees and clients alike,
and do wonders for the corporate bottom line.<br />
<!--[if !supportLineBreakNewLine]--></span><span style="line-height: 1.15;">
<!--[endif]--><o:p></o:p></span></font></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></span></div>
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<b style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">III. Capabilities<o:p></o:p></font></span></span></span></span></b></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">How does the strategy function fulfill its purpose and deliver meaningful
value? What capabilities are needed to do the above critical jobs well? <o:p></o:p></font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">Any CSO, any strategy executive – and really anyone who is trying to
act in a strategic capacity – need to be able to do three things well, to
operate <span style="line-height: 1.15;">comfortably </span>in the following three dimensions, in order to succeed (see
Figure 1):</font></span></span></span></span></div>
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<ol style="line-height: 1.15;">
<li style="line-height: 1.15; text-align: left;"><span style="line-height: 1.15; text-indent: -0.25in;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><b style="line-height: 1.15;">Upward.</b>
Zoom out vertically to see the bigger picture, understand the industry and
competitive dynamics, and zoom back down to connect that with daily
execution tasks</font></span></span></span></span></li>
<li style="line-height: 1.15; text-align: left;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><b style="line-height: 1.15; text-indent: -0.25in;">Forward.</b><span style="line-height: 1.15; text-indent: -0.25in;">
Project longitudinally into the future to anticipate what is to come, predict
and envision future competitive moves and business outcomes, and adjust current
plans accordingly</span></font></span></span></span></li>
<li style="line-height: 1.15; text-align: left;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><b style="line-height: 1.15; text-indent: -0.25in;">Across.</b><span style="line-height: 1.15; text-indent: -0.25in;">
Reach laterally across the organization to receive inputs from all functions
and stakeholders, to propagate the corporate vision, and create organizational
cohesion and consistency of execution</span></font></span></span></span></li>
</ol>
<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="line-height: 1.15; margin-left: auto; margin-right: auto; text-align: center;"><tbody style="line-height: 1.15;">
<tr style="line-height: 1.15;"><td style="line-height: 1.15; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIFSrdDJ3hnrhc_RqIDRVv3T7KLQ31QYM8lmHoBIUEC7hKTs9Li9xJubTDAmtdpAe8m6G4wqPVqsoDNZPmQeXsszmttaN6rRLLDGEXCl530PVl0IyC8UhUqR3uEaJOceYgmSEuU8mFrxIX/s1500/Role+of+Strategy.png" style="line-height: 1.15; margin-left: auto; margin-right: auto;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><img border="0" data-original-height="849" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIFSrdDJ3hnrhc_RqIDRVv3T7KLQ31QYM8lmHoBIUEC7hKTs9Li9xJubTDAmtdpAe8m6G4wqPVqsoDNZPmQeXsszmttaN6rRLLDGEXCl530PVl0IyC8UhUqR3uEaJOceYgmSEuU8mFrxIX/w640-h362/Role+of+Strategy.png" width="640" /></font></span></a></td></tr>
<tr style="line-height: 1.15;"><td class="tr-caption" style="line-height: 1.15; text-align: center;"><div class="separator" style="clear: both; line-height: 1.15; text-align: center;">
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<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="line-height: 1.15; margin-left: auto; margin-right: auto; text-align: center;"><tbody style="line-height: 1.15;">
<tr style="line-height: 1.15;"><td class="tr-caption" style="line-height: 1.15; text-align: center;"><div class="separator" style="clear: both; line-height: 1.15; text-align: center;">
<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" size="2"><b style="line-height: 1.15;">Figure 1.</b><span style="line-height: 1.15;"> The Three Dimensions – or Principal Axes – of Core Capabilities for Corporate Strategy</span></font></span></span></div>
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</tbody></table>
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<div style="text-align: left;">
<span face="verdana, sans-serif" style="font-size: small;"><font face="verdana"><br /></font></span></div>
<font face="verdana"><div style="text-align: left;"><br /></div><span face="verdana, sans-serif" style="line-height: 1.15;"></span>
</font><div style="text-align: left;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><span style="font-family: verdana; font-size: small;">The vertical (or </span><b style="line-height: 1.15;">Upward</b><span style="font-family: verdana; font-size: small;">) dimension
is what I call the “</span><i style="line-height: 1.15;">Google Earth</i></font><span style="font-family: verdana; font-size: small;">”</span><font face="verdana"><span style="font-family: verdana; font-size: small;"> ability of good strategists. It's the ability to zoom out of the task-level details
(the ‘</span><i style="line-height: 1.15;">street view</i><span style="font-family: verdana; font-size: small;">’) and to elevate to a higher level (‘</span><i style="line-height: 1.15;">the planetary view</i><span style="font-family: verdana; font-size: small;">’), see
the bigger picture, the patterns, the larger goal. Then put the day-to-day
tasks in context of that bigger picture.</span></font></span></div>
</div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><span style="line-height: 1.15;">Seeing the bigger picture and using it
to illuminate daily execution tasks has some considerable benefits:<span style="line-height: 1.15;"> </span>it showcases the macro patterns and
interrelations </span>within
the industry, it helps people make connections, and most importantly, it
helps imbue tasks and projects with meaning and purpose.</font></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
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<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">One of my favorite
professors at Columbia Business School, Michael Feiner, who wrote the bestseller
“<i style="line-height: 1.15;"><a href="http://www.feinerconsulting.com/author.html" style="line-height: 1.15;">The Feiner Points of
Leadership</a></i>”, says that good leaders help their hardworking teams see
that they are not just “<i>chiseling stone</i>”, but that they are “<i>building a
cathedral</i>”. CSOs, and their strategy function as a whole, should be able to effortlessly
zoom in and out of the <i style="line-height: 1.15;">Google Earth</i> dimension
to visualize, conceptualize, synthesize and communicate down the bigger picture
and the larger goals.</font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><span style="line-height: 1.15;"><span style="line-height: 1.15;">The longitudinal (or <b style="line-height: 1.15;">Forward</b>)
dimension is what I refer to as the </span></span></font><span style="font-family: verdana; font-size: small;">“</span><font face="verdana"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><i style="line-height: 1.15;">Chess
Master</i></span></span></font><span style="font-family: verdana; font-size: small;">”</span><font face="verdana"><span style="line-height: 1.15;"><span style="line-height: 1.15;"> ability of good strategists. It is the ability to envision and anticipate
what is to come. It requires one to visualize complex ‘trees’ of multiple probable
scenarios, consider the ‘if-then’, or cause and effect, relationships between
their own actions and those of others, and predict the most likely outcomes. </span></span><span style="font-size: small; line-height: 1.15;">This
capability enables the creation of compelling, differentiated, future-proof strategies that
have a high probability for success.</span></font></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="font-size: small; line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><span style="font-size: small; line-height: 1.15;">There are many examples of business leaders
who excel at this, but there’s probably no better poster child for this ability
than <font color="#3367d6">Apple</font>'s founder, Steve Jobs. Probably the most impressive display of this ability comes
from his </span><a href="http://www.magpictures.com/stevejobsthelostinterview/" style="line-height: 1.15;">“Lost Interview”
with Robert X. Cringely</a><span style="font-size: small; line-height: 1.15;">. In it, among many other prophetic predictions, </span><a href="https://youtu.be/WvRUO8nsVd8" style="line-height: 1.15;">Steve Jobs foresees the impact of the internet
on communications and commerce</a><span style="font-size: small; line-height: 1.15;">. The year is 1995. <font color="#3367d6">Amazon </font>has just barely
been incorporated. And there, 25 years ago, Steve Jobs envisions the explosion of e-commerce
and online banking, the significance of net neutrality, the rise of ‘emerging
brands’ and ‘direct-to-consumer’ (DTC) marketing. CSOs and their teams have to possess
this mental ability to ‘time travel’, to envision and anticipate, and to reflect
this gleaned knowledge in their company’s current plans and actions.</span></font></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">The lateral (or <b style="line-height: 1.15;">Across</b>)
dimension is probably the least glamorous and most overlooked capability strategy
executives (should) master – I call it the ‘<i style="line-height: 1.15;">Symphony
Conductor</i>’ capability. The <a href="https://en.wikipedia.org/wiki/Conducting" style="line-height: 1.15;">Wikipedia entry for “conducting”</a>
offers the following definition: “<i style="line-height: 1.15;">The
primary responsibilities of the conductor are to unify performers, set the
tempo, execute clear preparations and beats, listen critically and shape the
sound of the ensemble, and to control the interpretation and pacing of the
music.</i>” This is what so many great companies that have either a weak or no
strategy function are missing.</font></span></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">The CSO organization should play this unifying role
at each phase of the strategy process – from the single vision, mission and long-term
objectives in the <i style="line-height: 1.15;"><span style="font-style: normal; line-height: 1.15;">‘</span>purpose phase</i>’; to
the coordinated portfolio of proprietary assets, products and services, and
M&A transactions in the <i style="line-height: 1.15;"><span style="font-style: normal; line-height: 1.15;">‘</span>planning phase</i>’; to the centralized PMO processes, timelines, governance and KPIs in the <i style="line-height: 1.15;"><span style="font-style: normal; line-height: 1.15;">‘</span>execution phase</i>’. <o:p></o:p></font></span></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">These three dimensions of core capabilities should be used systematically
by CSOs and strategy leaders to build out and evaluate their own functional departments,
and to make sure they are capable and equipped to do the jobs of corporate strategy
well and fulfill its core purpose. CEOs should expect their corporate strategy
unit to perform capably across all three axes of strategic value-creation:
elevating the organization’s thinking, future-proofing the corporate vision and
strategic plans, and orchestrating a well-synchronized execution of all
critical initiatives.</font></span></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana">But the 'Principal Axes' framework of strategic capabilities should
also be used by other functional leaders – and really anyone across the organization
– to set the internal standards, nurture higher-level strategic thinking, and ultimately
deliver clarity of vision and consistency of execution.</font></span></span></span></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in; text-align: left;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana"><br /></font></span></span></span></span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: verdana;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgf9G7oF4VenZrdXZsrqK8O3y-002gnBt_w3OtovIlboqZjrBaVnjSEMmhWtcFiM-65LqwOLVyzMqQqUV6OZch2Yj6ejNMiR4ThyJ-H7aXbxgLo_Hwh8F0ynzb6P2PnTQASdxysfXL6UqhM/" /></span></a></div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: verdana;"><br /></span></div><div class="separator" style="clear: both; line-height: 1.15; text-align: center;"><span style="font-family: verdana;"><br /></span></div>
<div style="line-height: 1.15; text-align: left;">
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Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com0Princeton, NJ, USA40.3572976 -74.667222613.903642429571242 -109.8234726 66.81095277042877 -39.5109726tag:blogger.com,1999:blog-4046236588836115162.post-11491944115928768142020-05-24T18:46:00.031-04:002020-09-10T12:51:49.811-04:00Print or Digital: The Trade-Offs Brand Managers Face When Choosing Between Paper and Electronic Coupons<div class="separator" style="clear: both; line-height: 1.15; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLbbBR-8KYJfClA9F_pnnPmTen0lP6EIq2Xq7pZlQL92eyzkVzAxj7-UCJhD_18oFsBtX4AJtwQ_qi0ZMuqpvvGcHQiouRp1sin1BGWhEA4RwU6r-zB5DWlKQ7lxz37e5Opegg81hFQJaI/s1200/Coupons+6_bw.png" style="line-height: 1.15; margin-left: 1em; margin-right: 1em;"><font face="verdana" style="line-height: 1.15;"><img border="0" data-original-height="480" data-original-width="1200" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLbbBR-8KYJfClA9F_pnnPmTen0lP6EIq2Xq7pZlQL92eyzkVzAxj7-UCJhD_18oFsBtX4AJtwQ_qi0ZMuqpvvGcHQiouRp1sin1BGWhEA4RwU6r-zB5DWlKQ7lxz37e5Opegg81hFQJaI/w640-h256/Coupons+6_bw.png" width="640" /></font></a></div><div class="separator" style="clear: both; line-height: 1.15; text-align: center;"><font face="verdana" style="line-height: 1.15;"><br /></font></div>
<div class="separator" style="clear: both; line-height: 1.15; text-align: center;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Let’s talk about
coupons.</font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">More specifically,
manufacturer coupons issued by major brands for consumers to redeem against every-day
food and household purchases at grocery and drug stores.<o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Why, despite the appeal and growth of digital incentives, have traditional paper coupons continued to reign supreme? Is it just a matter of time to change consumer adoption habits, or is there more to the physical paper coupon that accounts for its longevity and continued popularity?</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span face="verdana, sans-serif"></span></font></span></div>
<div style="height: 0px; line-height: 1.15;">
</div>
<a name='more'></a><font face="verdana" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Coupons are a big business. According to <a href="https://cadentcg.com/publication/2020-marketing-spending-industry-study/" style="line-height: 1.15;"><font color="#3367d6">Cadent</font> Consulting’s 2020 Marketing Spending Industry Study</a>, CPGs spend nearly $19B on a combination of printed (mostly newspaper distributed free-standing inserts, or FSI), digital and retailer-specific coupons. In 2019, some 267B (yes, that’s billion, with a B!) coupons were issued, according to <a href="https://www.inmar-insights.com/mystore#/productDetails/productId/01t2A000005ZqhaQAC" style="line-height: 1.15;"><font color="#3367d6">Inmar</font>’s 2019 Promotions Industry Analysis report</a>, of which 1.74B were redeemed by consumers, helping them realize nearly $3B in savings. Digital coupons, distributed online or via mobile apps, have been steadily gaining popularity – over the 10 years since 2009, digital coupons have grown from 1.5% of all redemptions to 22.9% last year.<o:p></o:p></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Yet, paper coupons, while declining (in large, due to shrinking newspaper circulations), have shown surprising resilience. They account for the vast majority of all coupons distributed to consumers (some 240B of them were issued in 2019), and over 530M were redeemed in stores, making them (still!) the single largest coupon vehicle in terms of redemption volumes. <o:p></o:p></font></span></span></span></div><div style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><br /></span></font></div>It’s inevitable
that FSI programming, delivered through newspapers, shared mail and other
publications, will continue to decline, and many in the industry have been predicting
its “imminent demise” for years. But despite these rumors and speculations that
have been circulating for the better part of a decade, paper FSIs still
represent over 90% of all coupons distributed to consumers. The resiliency of
this product is not just a testament to its consumer appeal, but more
importantly, it is due to the fact that no digital promotional product has been able to
replicate the unique combination of value elements (both to consumers and to brand
managers) delivered by FSI programming. </span><br />
</font><div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">A quick exploration
of the purpose and realities of coupon promotions reveals why today’s digital
coupon, long-heralded as heir-apparent to the FSI, has so far failed to dethrone
the long-reigning Sunday-paper coupon insert. <o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<b style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Cost Efficiency<o:p></o:p></font></span></span></span></b></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">FSI booklets are
cooperative, multi-manufacturer, multi-brand vehicles, which sell ad pages at
cost per thousand (or CPM) in the range of $3-4. That’s $0.003-$0.004 per full-page
coupon published (the most expensive option, as most coupons utilize a fraction
of a page). Average redemption rates for FSIs hover around 0.2-0.25%, which
means brands pay $0.13-$0.15 per redemption.<o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Digital coupons, by
comparison, are typically sold by the “clip” (when a consumer clicks on the
coupon to save it to their digital wallet or loyalty card for future use) and
despite having no paper, ink or circulation cost, they generally sell for around
$0.09 per clip, which converts to a CPM of $90 per coupon clipped. And since
digital redemption rates (percent of clipped digital coupons that were redeemed
with a purchase) are around 7%, the cost per digital coupon redeemed ends up
being nearly $1.29.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Now, it’s true that digital promotions have many benefits –
digital campaigns theoretically allow more precise, one-to-one targeting via
digital media (e.g., websites, apps, social and email), generate detailed performance
and attribution data traceable down to the target audience or even the
individual consumer, and can be turned on and off in real time much more easily
than analog programs. But is that value worth 10x the cost to the brand
manager? And what about the comparative benefits of physical coupons (see
below)? <o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<b style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Universal Reach<o:p></o:p></font></span></span></span></b></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">FSIs are published
nearly every week of the year, save some holiday exceptions, and are sent via
direct mail or as newspaper inserts to over 60 million households. The sheer
value of getting hundreds of millions of eyeballs on a physical advertisement printed
in full-color and delivered to a consumer’s doorstep, is significant, but
largely overlooked by marketers and certainly not priced in any meaningful way into
the low (and dropping) CPM rates of the FSI.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">In addition, thanks to a coupon
clearing market structure that has existed and functioned predictably in the
industry for decades, paper coupons are universally redeemable at any retailer
who accepts coupons (which is the vast majority of them). Retailers work with
independent clearing houses, such as <font color="#3367d6">Inmar</font> and <font color="#3367d6">NCH</font>, to validate and count the
physical coupons, and provide the settlement services between the retailer and
the CPG brand for the aggregate face value of the coupons redeemed at the
retailer’s cash registers.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">That market structure, though invisible to consumers,
provides them with a major benefit that digital coupons are yet to crack – the
convenience of being able to redeem the coupon in whichever store they choose.
And for brand managers, it allows them – with a single contract – to activate a
large-scale campaign, reaching tens-of-millions of households with both a physical
brand-equity message and a promotional discount that can be used anywhere, without
having to consult or depend on any particular retailer. <o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">As for digital
coupons, they are by and large tied to a retailer’s loyalty program – the
consumer clips the coupon to their loyalty ID, and the next time they purchase
the promoted product <i style="line-height: 1.15;">at that retailer</i>,
they get the value of the discount (often automatically deducted without having
to present the coupon). To make this work, the systems of the activation
provider of digital manufacturer coupons (usually a third-party marketing
services company, like <font color="#3367d6">Inmar</font> or <font color="#3367d6">Quotient</font>) have to be integrated with the transaction
management and point of sale (POS) systems of the retailer.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Such integration is
an expensive, lengthy and potentially disruptive project for any retailer. As a
result, there are just a few providers integrated with a handful of retailers,
and there is no universal network that allows digitally distributed
manufacturer coupons to be redeemed by a consumer at any store of their
choosing – the consumer must go to the store whose loyalty program they used to
clip the coupon in the first place.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">And given the size and footprint of certain
large retailers, like <font color="#3367d6">Kroger</font> or <font color="#3367d6">Safeway</font>/<font color="#3367d6">Albertsons</font>, the vast majority of
digital coupon redemptions end up at these top chains. This de facto turns what
brand managers intended to be a nationally distributed, multi-retailer campaign
into a retailer-specific promotion and an extension of the already significant ‘<i style="line-height: 1.15;">trade dollars</i>’ they invest with these major
retailers.<o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><b style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;">Tactile Engagement</span></b><span lang="EN" style="line-height: 1.15;"><o:p></o:p></span></font></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">A former client at
a large CPG company once remarked that the paper coupon provides the shopper an
unavoidable reminder of its value. It’s tangible and must be used and read
during the shopping trip. A physical incentive has the ability to influence
shopping behavior far more effectively than a paperless digital offer that was clipped
some time ago in a shopping app, and likely forgotten thereafter.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">According to
the <a href="https://www.valassis.com/coupon-intelligence-report/" style="line-height: 1.15;">2K19
<font color="#3367d6">Valassis </font>Coupon Intelligence Report</a>, more consumers prefer to receive and
actually use physical coupons than paperless coupons. In addition, consumers
make the vast majority (76% in grocery and 82% at mass merchants) of their
brand choices in the store, as evidenced in the widely used <a href="https://memberconnect.shopassociation.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=af210ce1-cdb1-d6fb-7306-8970cb321e60" style="line-height: 1.15;">POPAI
Shopper Engagement Study</a>. In other words, brand loyalty doesn’t really
exist, and brands need to constantly retain and grow share during every
household purchase cycle. <o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Electronic coupons
distributed over digital media channels suffer from the same viewability, brand
safety and potential ‘click farm’ fraud challenges faced by all digital advertisements.
And even after clipping a digital coupon, how many consumers use their store
app during the shopping trip to consult their digital coupon wallet? When
shopping, especially for groceries, most consumers are in ‘<i style="line-height: 1.15;">utility mode</i>’.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">The POPAI study shows that the average grocery trip
is between 26-34 minutes. While in the store, consumers are not likely to be scrolling
through a list of 75-100 coupons clipped to their app. Digital coupons likely
have little influence on the in-store decisions consumers make, especially
since to redeem them requires no consumer action at the time of purchase.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Such <i style="line-height: 1.15;">passive</i> coupon redemption is not what brand
managers like to spend their money on, since it simply over-rewards a customer
who was already intending to buy that product. Now, concerns over handling
paper coupons caused by the COVID-19 pandemic may sway more consumers (and
retailers) to favor electronic coupons, but it remains to be seen whether these
fears and behaviors will persist in the long term. <o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<b style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Trade Leverage<o:p></o:p></font></span></span></span></b></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Coupons have
routinely been used by brands, in particular their sales organizations, to
incent retailers to buy more cases, advertise their product, and build
off-shelf displays in aisle or on endcaps (large end-of-aisle displays). When
an FSI is distributed over a single weekend, the marketplace is flooded with 30-50
million coupons and it is often timed in conjunction with a ‘<i style="line-height: 1.15;">trade deal</i>’ (a product cost reduction
offered by the brand to the retailer).</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This combination produces a push-pull
effect that works well for all parties. The trade deal <i style="line-height: 1.15;">pushes</i> the product into the retailer’s warehouses and stores, and
the coupon (as well as the in-store display the retailer created to coincide
with the coupon drop) causes a <i style="line-height: 1.15;">pull</i>
by encouraging impulse purchases, forward buying and new product trials. As
FSIs are universally redeemable, this trade leverage impact occurs at the
majority of retailers carrying the product, thus generating a multiplier effect
for sales volumes.<o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Digital coupons don’t
perform quite the same way. First, unlike the FSI, they are not
‘dropped’ at a particular date, so they do not create the same short-term surge
in buying activity (both by consumers and retailers) – instead, the clips and
redemptions trickle in over a longer period throughout the life of the
promotion.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Second, they are concentrated at large individual chains and don’t
have the same multiplier effect across the long tail of retailers. Even a large
digital campaign of 3 million coupons redeeming at a higher-than-average rate of
10% might have trade leverage at <font color="#3367d6">Kroger</font> and <font color="#3367d6">Safeway</font>, where most redemptions would
occur, but at the majority of retailers it will have little to no impact on
volume. <o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">In the end, the
question is <i style="line-height: 1.15;">not</i> whether digital
coupons are better than paper FSIs or the other way around. The question is:
how can the proven and tangible benefits paper coupons have long offered
consumers, brand managers and retailers be best replicated in digital form. How
to combine the tactile realness, the distribution scale and universal acceptance
of the paper FSI coupon with the smart targeting, campaign flexibility, and
data-rich insights provided by its digital descendants?<o:p></o:p></font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></div>
<div class="MsoNormal" style="line-height: 1.15;">
<span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">One answer is
likely to think of the two as <i style="line-height: 1.15;">complements</i>,
rather than as mutually exclusive alternatives. Integrated “<i style="line-height: 1.15;">digilog</i>” campaigns have proven to drive
better performance for brand managers and enhanced customer experiences.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">Another likely answer is that the consumer marketing industry, led by the CPGs
whose marketing budgets pay for the whole thing, should continue to encourage –
and even demand – greater innovation, competition, collaboration and
connectivity between marketing service providers, retailers and IT systems
integrators. The goal would be to leverage new technologies (like Blockchain,
AI, AR, and IoT) so that universal, retailer-agnostic networks and business
models can emerge, recreating the benefits of the FSI and the paper coupon clearing
model, and combining those with the intelligence and flexibility of digital coupons.</font></span></span></span></div><div class="MsoNormal" style="line-height: 1.15;"><span lang="EN" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></span></div>
<div class="separator" style="clear: both; text-align: center;"><a href="https://www.expertscoop.com/" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: verdana;"><img border="0" data-original-height="35" data-original-width="35" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAmWFhw-Dh76fMjR_zqiRfBSX2t4eXpdEKs1DpAkiPhM8zpg6OUFljS-T6_QYI9FefGO6RrScd7rnGrrBoaCurFmLp5BYZZVU0FAeYYGHbUtbHg7jiKM67oqlGI_leAOwKgtnuiDdXS2hI/" /></span></a></div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: verdana;"><br /></span></div><div class="separator" style="clear: both; line-height: 1.15; text-align: center;"><br /></div>Anonymousnoreply@blogger.com0Fairfield, CT, USA41.1408363 -73.261261540.9495983 -73.583985 41.332074299999995 -72.938538000000008tag:blogger.com,1999:blog-4046236588836115162.post-78236706029165406402020-05-18T15:34:00.033-04:002020-09-10T12:52:11.731-04:00Evangelize-Convert-Optimize: The Fundamental Purpose and Core Tasks of Consumer Marketing<div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">
<span style="font-family: verdana; font-size: small;"></span></div>
<div class="separator" style="clear: both; line-height: 1.15; text-align: center;">
</div>
<div class="separator" style="clear: both; line-height: 1.15; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2DA1IiiUXNt8vRfs27vCz38zPFcM_xpC-IfKNmkDvJP58Nsi1HZRT4g-NTIfEQyoaCzwGaiZN63jEVxC-s3O2aqkpsINq0TCjZq9shiU1w3TgzztgY3JMjT8B31hIVW1OHE7t6v2YYMQD/s1500/Shopper+in+supermarket_bw.png" style="line-height: 1.15; margin-left: 1em; margin-right: 1em;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><img border="0" data-original-height="600" data-original-width="1500" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2DA1IiiUXNt8vRfs27vCz38zPFcM_xpC-IfKNmkDvJP58Nsi1HZRT4g-NTIfEQyoaCzwGaiZN63jEVxC-s3O2aqkpsINq0TCjZq9shiU1w3TgzztgY3JMjT8B31hIVW1OHE7t6v2YYMQD/w640-h256/Shopper+in+supermarket_bw.png" width="640" /></font></span></span></a></div>
<div class="separator" style="clear: both; line-height: 1.15; text-align: center;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br /></font></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;">Let’s talk about consumer marketing.</span><br />
<span style="line-height: 1.15;"><br /></span></font></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">More specifically, the industry of consumer marketing, its fundamental purpose,
core tasks, market structure, dynamics and size.</font></span></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;"><font face="verdana" style="line-height: 1.15;"><br />
</font><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;">This article, focusing on the fundamental purpose and core tasks of consumer marketing, is the first in a series on how to strategically evaluate the marketing services industry landscape, make sense of the trends and competitive moves impacting it, and think critically about the various industry players and their strategic position and significance.</font></span></span></span></span></span></div></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"></span></font></span></span></div>
<font face="verdana" style="line-height: 1.15;"><span style="font-family: verdana;"></span><br />
</font><a name='more'></a><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;"><span style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><span style="line-height: 1.15;">Consumer marketing is evolving at a dizzying pace, and so is the marketing services industry landscape. Major players, like <span style="color: #3367d6; line-height: 1.15;">Microsoft</span>, <span style="color: #3367d6; line-height: 1.15;">Salesforce </span>and <span style="color: #3367d6; line-height: 1.15;">Verizon</span>, who are not indigenous to the industry are entering the space with ambitious agendas and vast resources; digitally native startups are proliferating in every corner of the landscape, disrupting long established business models; and industry veterans, like the top agency holding companies (e.g., </span></span><span style="color: #3367d6; line-height: 1.15;">WPP</span><span style="line-height: 1.15;"><span style="line-height: 1.15;">, <span style="color: #3367d6; line-height: 1.15;">IPG</span>, <span style="color: #3367d6; line-height: 1.15;">Omnicom</span>) or retail merchandising brokers (e.g., <span style="color: #3367d6; line-height: 1.15;">Acosta</span>, <span style="color: #3367d6; line-height: 1.15;">Crossmark</span>, <span style="color: #3367d6; line-height: 1.15;">Advantage</span>) are looking to reinvent and secure their strategic footing in the marketplace.</span></span></font></span></span></span></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;"><span style="font-family: verdana; font-size: small;"><br /></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;"><span style="font-family: verdana;"><span style="font-size: small;">First, some helpful definitions: What is marketing? According to </span><a href="https://www.ama.org/the-definition-of-marketing-what-is-marketing/" style="line-height: 1.15;">the
latest definition approved by the American Marketing Association (AMA)</a><span style="font-size: small;">, “</span><i style="line-height: 1.15;">Marketing is the activity, set of
institutions, and processes for creating, communicating, delivering, and
exchanging offerings that have value for customers, clients, partners, and
society at large.</i><span style="font-size: small;">” Sounds like everything and everyone involved in creating
products and services, making customers aware of and interested in them, making
them available and accessible via distribution, and finally selling and
delivering them to customers.</span></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><br /></span>
<span style="line-height: 1.15;">This definition, while useful for providing a panoramic, full-value-chain
view to CMOs and management consultants, is too broad for the purpose of the
industry analysis we will embark on. Instead, we will limit the definition of
marketing to <a href="https://www.provenmodels.com/547/aida-sales-funnel/elias-st.-elmo-lewis" style="line-height: 1.15;">the
traditional ‘AIDA’ marketing funnel developed in 1898 by Elias St. Elmo Lewis</a>,
an American advertising pioneer. In that model, marketing starts with <i style="line-height: 1.15;">awareness</i>, develops into <i style="line-height: 1.15;">interest</i>, accelerates to <i style="line-height: 1.15;">desire</i>, and culminates with <i style="line-height: 1.15;">action</i>. In other words, marketing
starts <i style="line-height: 1.15;">after</i> the product is created
and ends <i style="line-height: 1.15;">as soon as</i> it is purchased
by the customer. Then, the cycle starts all over again.</span></font></span></span></div>
<div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;">
<span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><br /></span>
<span style="line-height: 1.15;">So here is a simple way of looking at this very complex industry (see Figure
1). The basic purpose of consumer marketing is to motivate consumers to move
down the AIDA funnel and convert them into buyers. To do that, consumer brands spend
their marketing budgets to reach their target audiences and achieve three things:</span></font></span></span></div>
<ol style="line-height: 1.15; text-align: left;">
<li style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><b style="line-height: 1.15;">Deliver brand
equity messages</b> to make consumers aware of and interested in the product</font></span></span></span></li>
<li style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><b style="line-height: 1.15;">Provide purchase
incentives</b> to nudge consumers to buy the product</font></span></span></span></li>
<li style="line-height: 1.15;"><span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><b style="line-height: 1.15;">Gather consumer
insights</b> to plan and measure the success of the marketing campaigns</font></span></span></span></li>
</ol>
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><b></b></font></span></span></span></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="line-height: 1.15; margin-left: auto; margin-right: auto;"><tbody style="line-height: 1.15;">
<tr style="line-height: 1.15;"><td style="line-height: 1.15; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiw6NGLGwVE0eCUqZE5HX-GRMDXmmzAYjFVVla7rq7vNZ88GEPTFi-3M5Z8YtbxwIhHKVbz_rNhOHHbicBaeq2_InZN6WkishPKSTgg7q65wBSlvsWsO5az2aunTlKdcSeW72nwJ2zqMnHi/s1500/Consumer+Marketing+I-1.png" style="line-height: 1.15; margin-left: auto; margin-right: auto;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><img border="0" data-original-height="849" data-original-width="1500" height="362" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiw6NGLGwVE0eCUqZE5HX-GRMDXmmzAYjFVVla7rq7vNZ88GEPTFi-3M5Z8YtbxwIhHKVbz_rNhOHHbicBaeq2_InZN6WkishPKSTgg7q65wBSlvsWsO5az2aunTlKdcSeW72nwJ2zqMnHi/w640-h362/Consumer+Marketing+I-1.png" width="640" /></font></span></span></a></td></tr>
<tr style="line-height: 1.15;"><td class="tr-caption" style="line-height: 1.15; text-align: center;"><font face="verdana" size="2" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="line-height: 1.15; text-align: left;"><b style="line-height: 1.15;">Figure 1.</b> The fundamental purpose and core tasks of consumer marketing</span></span></span><br />
</font><div style="line-height: 1.15; text-align: left;">
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<span style="line-height: 1.15;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><br />Equity messages are about telling the brand story, surfacing a consumer
need or pain point that the product addresses, and creating an emotional
connection to build <i style="line-height: 1.15;">brand equity</i> with
the consumer. Equity messages are more often than not broadcast to wider
audiences; their goal is to cast a wider net, spread awareness and generate
broad momentum. They are primarily delivered at the <i style="line-height: 1.15;">top of the funnel</i>, in the earlier stages of the consumer shopping
journey, with continuous reinforcement as the consumer travels down the funnel.
Equity or awareness marketing is usually the realm of <i style="line-height: 1.15;">mass media</i>, is usually funded by manufacturers’ centralized <i style="line-height: 1.15;">national brand budgets</i>, and its delivery
vehicles and success metrics are aligned with its core purpose: to <b style="line-height: 1.15;">evangelize</b>.</font></span></span></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><br /></span>
<span style="line-height: 1.15;">Purchase incentives are about converting a target consumer into a
buyer – ideally, a repeat buyer. They are about overcoming an objection, breaking
a habit, seizing an opportune moment. The marketing tactics include store discounts,
manufacturer coupons, cashback offers, but also free sampling, product placement
and displays, special promotional events, and many more. The right context, the
right moment, the right venue and a relevant offer are key to the success of purchase incentives. That’s why they are more commonly delivered near or at the <i style="line-height: 1.15;">point of purchase</i> – at a store, on an e-commerce
website or in a shopping app – also known as the <i style="line-height: 1.15;">bottom of the funnel</i>. This is the realm of <i style="line-height: 1.15;">performance media</i> and <i style="line-height: 1.15;">shopper
marketing</i>; it is usually paid for by manufacturers’ retailer-specific <i style="line-height: 1.15;">shopper budgets</i>, and the ways promotional
marketing is activated and measured are attuned to its main purpose: to <b style="line-height: 1.15;">convert</b>.</span></font></span></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><br /></span>
<span style="line-height: 1.15;">Consumer insights (CI) are the feedback loop that helps brands ensure
they are achieving their marketing objectives, while spending their budgets
efficiently. CI informs and shapes every stage of the marketing value chain –
from campaign design and planning to audience targeting to media activation to
performance measurement to spend optimization. Customer data obtained from
consumer polls or shopper behaviors, such as traffic patterns or transaction
logs, are the lifeblood of CI. This is the realm of marketing data science, consumer
panels, <i style="line-height: 1.15;">marketing mix models</i> and <i style="line-height: 1.15;">marketing ROI</i>. It drives how brands (i.e.,
their brand managers, CMOs, CFOs, and even activist investors) decide how much money to spend
on which medium and which tactic, and thus its core purpose is: to <b style="line-height: 1.15;">optimize</b>.</span></font></span></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><br /></span>
<span style="line-height: 1.15;">Any framework is an oversimplification of the complex world it
represents – this one is no exception. But simplicity is an important strategic
tool – it helps provide clarity of understanding, vision and purpose.</span></font></span></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><br /></span>
<span style="line-height: 1.15;">The three core tasks above are at the core of the consumer
marketing industry – they shape its landscape structure, competitive dynamics
and strategic opportunities. To make sense of the industry when analyzing
different industry segments, marketing players, service providers or emerging
technologies, it is useful to examine them against these core tasks consumer
marketing is designed to achieve. The capabilities needed and strategies
deployed to successfully drive brand equity are different from those to drive
conversion or to extract and apply consumer insights.</span></font></span></span></div>
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<span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><br /></span>
<span style="line-height: 1.15;">In our next few articles of this series, we take a closer look at the
consumer marketing industry structure, and discuss different ways to segment
and study the players that populate the marketing services landscape.</span></font></span></span></div><div class="MsoNormal" style="line-height: 1.15; margin-bottom: 0in;"><span face="verdana, sans-serif" style="line-height: 1.15;"><span style="font-family: verdana; line-height: 1.15;"><font face="verdana" style="line-height: 1.15;"><span style="line-height: 1.15;"><br /></span></font></span></span></div>
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Peter Moustakerskihttp://www.blogger.com/profile/09626249113018647727noreply@blogger.com0New York, NY, USA40.7127753 -74.005972812.402541463821152 -109.1622228 69.023009136178842 -38.849722799999995