Know-How Exchange : Research/Metrics

Koen,
The key to managing this situation IS the regularly monitoring and taking tactical corrective actions. The process goes as such: You set up a strategy that spells out your goals. You formulate plans with concrete actions, measurements, and routine monitor points, evaluate risk factors and set up contingency actions, and then execute. As you evaluate at each monitor point, an attempt to explain deviation from expected results is made and corrective actions are made. Keep in mind that these corrective actions taking in aggregate will refine the strategy and cause it to change with time naturally. In a process like this, what has to happen to cause a wholesale "change" in strategy is a dramatic change in the market dynamics - like your company acquiring or being acquired, a tehnology breakthrough, etc.

Hi koen

Im just trying to understand where you’re coming from and would just like clarification. You have identified seasonal variations as one possible piece of evidence for the decline in performance. Are you asking?

"How many factors that are contributing to poor performance should I be considering before I recommend a change in Marketing Strategy"?

I absolutely believe in the collection of evidence before making any changes. However in many cases iv encountered that the presenting problem (Marketing Strategy in this case) may not be the real problem.

Which begs the obvious question, do you think Koen that it could be something else that is contributing to the decline in performance?

It seems that you think there are other factors that may be contributing to the decline.
As you have knowledge of the market you will be able to identify areas of exploration for possible solutions. After getting an overview of market and company data, I would list no more than 4 possible areas that may be contributing to the decline in company performance. This list would be mutually exclusive and collectively they should be exhaustive. As an example 3 of these areas could be:

1. Marketing Strategy

•Company positioning not clearly defined
•Position in market difficult to maintain due to competitive intensity
•Positioning no longer fits the needs of the target market

2. Tactical Execution

•Company positioning not communicated across all promotional channels
•Possible lack of monitoring the success of your marketing across each communication channel (Marketing Return On Investment)

3. Seasonality

•Revenue figures for past 5 years in same period
•Competitor revenue figures for past 5 years during same period

I would form a hypothesis through market, company data and gut feeling. I would then go out and find the FACTS which would either prove or disprove my hypothesis. E.g. If I felt that it was my company’s Marketing Strategy that was the problem, I would analyse each point (listed under Marketing Strategy above) by gathering the relevant DATA. If I find that the FACTS tell me that my hypothesis is wrong, I would move on to tactical execution and so on.

Through this process of elimination I should have the problem solved with all the relevant FACTS to BACK IT UP. I think this process can allow you to form highly rigorous solutions in an efficient and structured manner. Obviously this becomes crucial when you need to present it to the board.

You will know through the facts when or if to change your Marketing Strategy in order to improve performance.

I hope this humble attempt helps in some way.

Regards
Naeem

hi koen

the threshold point that determines the point when Marketing Strategy to be changed differs from industry to industry, product to product within an industry and campaign to campaign for a particular product or brand. theres no hard and fast rule of determining the threshold point as such, IMHO.

a shift is strategy just doesnt happen overnight. when you have a particular marketing strategy for a particular brand, before you implement you take into account all the possible market factors and the dynamics of the market. based on that you determine a Forcast say for 1 yr. this is a rolling forcast.

once the strategy is implemented its continuously monitored and whereever there is a deviation of actual from plan/forecast, an explanation is sought and corrective actions are taken to remedy, and also to make up the deficit. this corrective actions are made on various parameters and factors which influnence the marketing strategy.

these corrective actions collectively make the shift in marketing strategy of the brand, and usually this happens over time. the time depends on product category, for FMCG its pretty small time, roughly about 6 -8 months to 1 year time.

let me give you an example from my experience. back in 2001 during my stint with my former company, we lauched an upper-low segment FMCG brand called X+ (MRP Tk. 1.50 per stick). it was an extension of the popular low segment brand X (MRP Tk. 1.00 per stick). one of the strategy of X+ was to launch in popular pack which earlier X was packed but not cost-efficient for X. so the management consciouly decided to launch X+ in that popular demanding package (but a higher price than X).

when the strategic planning was done a Rolling Forecast (ROFO) was done and all the marketing parameters were taken into account, all sorts of FGD, sampling, pricing comparison, packaging test, etc. were done. subsequently a sales forecast along with A&P budget as well as other financial budgets were prepared.

when X+ was launched, the initial reaction of consumers were surprising. they complained that the product was not different from X while the company was unncessarily charging more per stick. THey reasoned since the company was not supplying the demanding pack X, they are cannibalizing the X on-demand pack with X+.

as a result, sales was not picking up at all, as no repeat-purchase was there after the trial. the distribution parameters were not meeting expectations and the brand awareness was low.

now those are deviations from the plans. the company took corrective actions step-by-step.
1. first, the MRP price was reduced from earlier and the gap between X and X+ was reduced.
2. then all the communication were tinkered to communicate the new price.
3. then to increase awareness, branded trade clusters as well as branded outlets were developed.
4. then to induce more trial and repeat-purchase, promotional campaigns were introduced.

all these activities were undertaken over a certain period of time. whenever a new corrective action is taken on for a particular element of the marketing strategy, time is given to see whether that correction moves the graph upward towards the plan or not. if not then another corrective action is taken in tandem with the previous correction and again measured against the plans. it must be noted whenever you initiate a change the elements of marketing strategy, there will be some positive changes, but whether positive change is being sustained or not is the question.

ultimately, even after almost completely changing the marketing strategy and action plan, the brand could not be established in the market in the desired segment. in the end the company decided to withdraw the remainder of the stock from market/trade and withdrew the brand all together. brand X+ is dead.

all of this happened over a period of 7 months, thats less just little more than 2 quarters.

as i have said earlier, this threshold point (of 7 months) will be different for a brand of P&G or Unilever, and will definitely be different for industrial products or white goods.

hope this helps.

cheers!!

In my experience and the research I've done for a book project (interviewing senior marketing magagers on how they gain insights for making major decisions), I think most companies wait longer than they should before making fundamental changes in their marketing strategies.

They are either hoping the data will "turn around" and prove that the original strategy was really correct, or they don't have alternate strategies tested and are reluctant to jump off the horse they're riding onto another one that may be worse.

I have one client who waited for his business to decline by almost 20% (over 5 years) before calling us in to "revitalize" the business. Of course, the true revitalization took a year to design/test. (Yes, it worked, and sales grew by 50% in two years. Actually relaunched AND line extended at the same time. It was a unique situation in a very mature market, with sleepy competition.)

When I spoke with the senior execs for the book, many of them said they were hired/promoted into their jobs BECAUSE sales were falling off and the previous regime didn't have a plan to "save the business." Well over half of these folks were in consumer packaged goods businesses, though a few were in consumer durables and/or ingredient B2B categories. Their reason-for-being (in the job) was to make major changes in strategy that were long overdue.

Hope this helps some.

Koen

I think Marcus (mbarber) answered the question well and generically, and it sounds like you are looking for more anecdotal info.

Michael Goodman pointed out companies generally wait too long. In my experience this is because the decision makers disbelieve the early performance figures and get fed a lot of "excuse" information from sales people. So they are trying to make decisions based on bad, misleading data. No wonder they delay!

Another issue is the "Recheck" factor. The data looks bad, so the decision makers want the data checked, not only that, they want the EXECUTION of the strategy checked, to find out if the strategy has been executed properly. According to BSCOL, 80% of Fortune 500 companies surveyed, admitted they had not executed the strategy that had been planned, accepted and approved by the leadership team.

It makes you wonder...

Delays are inevitable when dealing with lagging data. Companies that have strongly articulated, well executed strategy, have clear leading indicators to support their execution confidence levels, and, therefore, get advance warning of a potential failure and take faster avoiding action.

Unfortunately, those companies are very much in the minority.

To provide some timescales, in a very well structured company with excellent measures and informational flow, a strategy/price/promotional change was indicated and taken if the product would not perform in the market as forecast within 3-4 weeks (capital equipment, electronic games industry, my personal experience).

In an earlier career capital equipment, printing and prepress industry) that same decision might have taken 6-9 months.

Hope this helps.

Koen,

I think a way to understand the point at which you would make a drastic change in the marketing strategy might be to look at the converse: If sales were declining, WHY WOULDN’T you change strategy? Let’s take seasonality out of the equation, since there are ample elementary models to examine data and remove seasonality. Let’s take a scenario:

You get a report from your marketing intelligence group. Your frozen dinner revenues declined this month from last to a significantly enough that you can’t blame it on seasonality. Paper in hand, why wouldn’t you change the strategy RIGHT NOW? Simple answer: You don’t know the cause of the decline. Is it share loss? Is it market size decline? Was there a alternate product category release – dry instant dinners, for instance? Was there a government press release linking frozen dinners to facial hair growth for women and baldness for men? Was it a production problem – i.e. the store shelves were empty?

What do you do? You embark on a fact finding mission. You call the market intelligence department and ask for market size and share information. You call the distribution manager and ask how many dinners were on the shelves. The chant, “More data, give me more data” echoes through the halls.

So now you have data. The data says you are losing marketing share. New data mission…why are we losing market share? Again, the data crankers go wild and you find out that it’s because your competitor launched a new campaign. You have several options. You can do nothing…let the campaign end and see what happens. You can change your campaign. You can launch a new campaign. And probably several other options. How do you decide? All of these decisions cost the company money. To change a campaign or launch a new one – that’s obvious. To do nothing – that means you will suffer reduced profits because of reduced sales. Or you could decide to launch a scope limited market trial and based on the results, take the appropriate action. Like all decisions, based on ROI. What action makes sense given the expected return on that action?

Getting back, then to the question – when do you through in the towel on your strategy? When the benefits of doing so outweigh the cost. What we have all espoused is a process of periodically monitoring and analyzing the results and then taking the action that makes sense based on what’s happening. Dramatic market or competitive changes will cause immediate re-think of strategy. That’s obvious. In frozen dinners, Atkins blew away the low fat people, so now many of the specialty healthy dinners include carb counts. And I wouldn’t be surprised to find out that the product development guys are coming out with low carb alternatives to the past offerings. The strategy changed because the market changed. Note that Swanson’s didn’t change their Hungry Man brand – they are still marketing the Hungry Man and the Hungry Man XL to the “We don’t care about any stinkin’ health! We want to be full” crowd without carb counts.

So, in answer to your question, I don’t think that there’s a cut and dried answer like, “six periods of decline spell a strategy change.” The best practice is to analyze the results and pin down the cause of the decline, develop alternatives to fixing it, and pick the alternative action that has the highest projected payback.

One other point: people fall in love with their own ideas and deny versus change. When analyzing the data for cause, it’s easy to come up with arguments for not changing than changing. Being able to separate yourself from the strategy to look at the data in an unbiased fashion is a limited characteristic of many managers. And managers are risk averse – especially when it comes to spending money on the unexpected and untried. A strategy change falls into this category. The data showing need for strategy change has to be solid and tested. Gathering and testing the data isn’t going to happen in a day. But this process can be evaluated for cost in terms of expense and impact of revenue decline over the time you are testing it.

When I interviewed several dozen senior executives to find out how they make important decisions, the majority of them said something like this:

"I look at the data that I'm given. I sleep on it for a day or two. And then I make a decision that feels right to me. I trust my intuition."

Now all of these people were in senior positions. The most junior was a vp-marketing. That means they have been in the business of making decisions for a while, and they've probably proven themselves to be pretty good at it (or they wouldn't have reached their senior positions).

They are telling us they use their intuition as a primary decision-making tool. Why wouldn't that be the way to decide when to change strategies?

BTW, the majority of the execs I interviewed were in the US and UK, and were in consumer packaged goods. There were a few in other countries and other industries (services, durables, B2B, etc.), but mostly CPG. If there was a consistent thread, it's that they used a lot of sophisticated analytical approaches, were very good at analyzing data from a broad range of sources, and still relied primatily on their [informed] intuition.