Devangshu Dutta
June 8, 2010
REVIEW: FLIP THE FUNNEL: Joseph Jaffe (John Wiley & Sons)
I’ve read Joseph Jaffe’s book across multiple air journeys, nationally and internationally. I agreed with the principles described and saw parallels with excellent services businesses over the past few years. However, the implications didn’t quite strike me in the gut until I realised – while writing this on board an aircraft – that the journeys I had taken with this book had also been with just one airline.
My loyalty to this airline is not because of the mileage card I hold, although their mileage programme is certainly among the best in the world. It is not because they were the cheapest or the most on-time, though they compete favourably with other comparable airlines.
My loyalty to them is because of what they did during the Mumbai floods in July 2005. Those who remember the chaos, through personal experience or through media, wouldn’t blame airline staff for abandoning their counters, and leaving the airport to try and reach home as early as they could. Certainly most of them must have felt helpless in the face of increasingly desperate passengers who couldn’t expect to depart any time soon. Jet Airways stood out as being the only one in Mumbai’s Terminal 1-B whose team felt responsible enough to stay back at the airport to be available to the passengers. Not only did they ensure that the passengers stuck in the terminal were safe, but that all waiting passengers got three meals a day! Whether or not they were flying with Jet Airways.
Now, in telling you about incident, I have closed the loop and given you a living example of the “flipped funnel” that Jaffe describes in the book.
The normal marketing funnel is described by the process Awareness, Interest, Desire and Action (or “AIDA”) which underlies the spray-and-pray approach of traditional marketing. The result of AIDA is that a lot of customers become aware of a business, brand or product. Some are interested enough to seek out the product. However the number who move on to the next stage of actually expressing desire to buy is lower, and those who actually buy are fewer still, as amply demonstrated by carts being abandoned before actually checking out.
Jaffe points out that the AIDA principle was created in times of abundant growth in the US, but is a suicidal funnel to fall into when resources are scarce. It is lopsided, with more money being spent on customers who will not buy. It is linear and does not capture the complexity of buying behaviour. It is open and incomplete because it only handles potential customers up to the point where they become actual customers, but does nothing with them thereafter. AIDA also inherently assumes customer churn, hence the opening focus on creating awareness among potentially new customers.
The alternative principles Jaffe describes are simple: getting more customers to buy from us and more often (repeat purchases), to spend increasing amounts with us (loyalty), and finally, to recommend us to their friends and associates (referrals). However, to do this requires dramatically different thinking from AIDA spray-and-pray. Jaffe’s alternative model – ADIA (Acknowledgment, Dialogue, Incentivisation and Activation) – focuses on customers more than prospects.
Acknowledging customers itself is such a major stumbling block for so many companies, such as the retailer whose front-line staff would prefer to fold and put away garments than meeting the eyes of the customer who has walked into the store. In some cases it may be about using technology effectively rather than as a barrier. When the taxi company can recognise the number you are calling from and close your order in less than 120 seconds, why does the telephone company that issued that number make you jump through burning hoops for 5-10 minutes before they will allow you to request a duplicate bill?
That acknowledgement should lead to an on-going dialogue, before, through and well after the purchase is done. This would be supported by constant incentives for the customer to buy more from you. It is not about having a loyalty programme, as Jaffe quotes studies that demonstrate that loyalty programmes alone don’t produce loyalty; in fact there are enough businesses that do not run loyalty schemes but have what can only be called fan followings.
The final link in that funnel is building that community of evangelist enthusiasts who will carry your brand message farther and far more effectively than any traditional form of marketing could. Religious organisations have known this for thousands of years – it is high time that businesses and other organisations recognised the power of the community as well.
Jaffe acknowledges that Seth Godin actually came up with the term “flipping the funnel” over 3 years ago, when he released the e-book of that name (available on sethgodin.typepad.com) primarily about using social media effectively. Jaffe, to his credit, has applied the principles more fully across the marketing and customer service process.
Jaffe recently sold his business, crayon, but has kept his title “Chief Interruptor” at the acquiring company. If you want to make your marketing really pay, you’ll find it worthwhile letting “Flip the Funnel” interrupt your normal marketing thought-process.
(This review was written for Businessworld.)
Devangshu Dutta
March 30, 2010
Last week, Starbucks unveiled its strategy for profitable global growth, having taken approximately US$ 600 million out of costs in since January 2008.
About 3 years ago in a leaked memo, chairman Howard Schultz had raised concern about how, in the race to scale and to become consistent, Starbucks was losing sight of all critical things that had made it successful in the first place. (“The Commoditization of the Starbucks Experience – Soul Searching by Howard Schultz“).
In January 2008, Schultz took on an active role as CEO in a bid to stem the rot (“Leadership Change at Starbucks – The Barista Returns“).
These two years have been eventful. Shortly after Schultz stepped in, Starbucks announced that it would close 600 under-performing stores in the US. That was well before the “financial tsunami”. In 2009, another 200 in the US and 100 globally were identified for closure, and the company also scaled back on its 2009 expansion plan for 200 new stores.
At its shareholders’ meeting last week, Starbucks presented a more confident face, and outlined a return to growth with plans to expand its presence and “accelerate profitable growth in both the U.S. retail business and in key international markets”. (This profitable growth mantra was also recited in last year’s shareholder meeting.)
However, while the business is looking better, it is far from fixed.
The environment is different. Globally, consumer wallets are leaner, competitors are meaner, and Starbucks may yet need to shrink further; the fat ain’t all in the latte.
Yet, there must be much good in the business if, for all its faults, it still gets imitated around the world.
According to Starbucks, it currently has less than 4 percent of the U.S. coffee market with its 6,800 own and 4,400 licensed stores, and less than 1 percent of the global coffee market even with 2,000+ company stores and 3,500 licensed stores. The company sees that as enough headroom to grow.
Schultz has promised to put the tough lessons learned in the last two years to good use. The company currently has approximately 200 fewer stores than it did at the beginning of 2009 even after new store openings during the year. (To put the current number of 16,700+ stores in perspective, the company had a total of “only” 2,600 stores in Q1-2000.)
But there’s something to think about. If the entrepreneur needs to step back in to fix things gone horribly corporate (bland) and wrong, maybe it’s time to acknowledge that there’s a logical limit to the size and scaling-up capability of personalized experience businesses.
Or, as a friend says, scale can be a logical outcome of excellence but excellence is never the logical outcome of scale.
It remains to be seen whether this round of growth will come from the company’s natural strengths or whether Starbucks will return to growth-by-steroids as Schultz eases on the controls.
Devangshu Dutta
January 5, 2010
If we were to look at phrases that have cropped up during the recent recessionary times in the consumer goods sector, “private label” has to be among those at the top of the list.
From clothing to cereals, toothpaste to televisions, there is hardly a category that has not seen retailers trying their hand at creating own labelled products.
The first motivation for most retailers to move into private label is margin. On first analysis, it appears that the branded suppliers are making tons of extra money by being out there in front of the consumer with a specific named product. The retailer finds that creating an alternative product under its own label allows it to capture extra gross margin. Typically the product category picked at the earliest stage of private label development would be one for which several generic or commodity suppliers are available.
At this early stage, the retailer is aiming for a relatively predictable, stable-demand and easily available product whose sales would be driven by the footfall that is already attracted into the store. A powerful bait to attract the customer is the visible reduction in price, as compared to a similar branded product. If the product can be compared like-for-like, customers would certainly convert to private label over time.
However, maintaining prices lower than brands can also be counter-productive. In many products, while customers might not be able to discern any qualitative difference, they may suspect that they are not getting a product comparable to one from a national or international brand. And while private label can drive off-take, the price differential can also erode gross margin which was the reason that the retailer may have got into private label in the first place. Over time, such a strategy can prove difficult to sustain, as costs of developing, sourcing and managing private label products move up.
The other strong reason a retailer chooses to have private label is to create a product offering that is differentiated from competitors who also offer brands that are similar or identical to the ones offered by the retailer. Department stores, supermarkets and hypermarkets around the world have all tried this approach – some have been more successful than others. The idea is to provide a customer strong reasons to visit their particular store, rather than any of the comparable competitors.
Of course, when differentiation is the operating factor, the products need more insight and development, and closer handling by the retailer at all stages. A price-driven private label line may be sourced from generic suppliers, but that approach isn’t good enough for a line driven by a differentiation strategy. In this case, costs of product development and management increase for the retailer. However, to compensate, the discount from a comparable national brand is not as high as generic nascent private label. In fact, some retailers have taken their private label to compete head on with national brands – they treat their private labels as respectfully as a national branded supplier would treat its brand.
So what does it take to go from a “copycat” to being a real brand?
Third Eyesight has evolved a Private Label Maturity Model (see the accompanying graphic) that can help retailers think through their approach to private label, whether their product offering is dominated by private label, or whether they have only just begun considering the possibility of including private label in their product range. The model sketches out a maturity path on five parameters that are affected by or influence the strength of a retailer’s private label offering:
In some cases, retailers may have multiple labels, some of which may be quite nascent while others might be highly evolved, clear and comparable to a national brand. This could be by default, because the labels have been launched at different times and have had more or less time to evolve. However, this can also be used as a conscious strategy to target various segments and competitive brands differently, depending on the strength of the competition and their relationship with the consumer.
The interesting thing is that size and scale do not offer any specific advantage to becoming a more sophisticated private label player. Some extremely large retailers continue to follow a discounted-price “me-too” private label strategy where even the packaging and colours of the product are copied from national brands, while much smaller players demonstrate capabilities to understand their specific consumers’ needs to design, source and promote proprietary products that compare with the best brands in the market.
For a moment, let’s also look at private labels from the suppliers’ point of view. As far as we can see, private label seems to be here to stay and grow. Suppliers can treat private labels as a threat, and figure out how to ensure that they retain a certain visibility and relationship with the consumer. On the other hand, interestingly, some suppliers are also looking at private label as an opportunity. They see the growth of private label as inevitable, and would much rather collaborate in the retailer’s private label development efforts. This way they can maintain some kind of influence on the product development, possibly avoid direct head-on conflict with their own star branded products and, if everything else fails, at least grab a share of the market that would have otherwise gone over to generic suppliers.
If you are retailer, I would suggest using the Private Label Maturity Model to clarify where you want to position yourself, and continue to use it as a guide as you develop and deliver your private label offering.
If you are a supplier concerned about private label, my suggestion would be to gauge how developed your customer is and is likely to become, and ensure that you are at least in step, if not a step ahead.
Of course, if you need support, we’ll only be too happy to help! (Contact Third Eyesight to discuss your private label needs.)
Devangshu Dutta
May 9, 2009
Bernice Hurst, Contributing Editor, RetailWire mentioned the “Let Children Grow” campaign in the UK jointly promoted by The Independent on Sunday newspaper and the highly respected gardening charity, the Royal Horticultural Society (RHS). Launched in 2007, the RHS Campaign for School Gardening, sponsored by the food and grocery retailer Waitrose, is a nationwide scheme designed to encourage schools to create gardens and teach children the skills of growing plants.
It is described as “an ambitious initiative to encourage the nation’s children to grow their own fruit and vegetables”. The programme targets deprived areas, particularly those with combinations of poor health, low income and levels of aspiration. By working with young people, the idea is to improve their health while teaching them what to eat and where food comes from. RHS research suggests it can “help improve academic achievement, behavior and confidence among pupils”.
According to the Independent on Sunday, most of the children “are learning for the first time about gardening, and with it the enjoyment of fresh air, appreciation of the environment, healthy eating and in turn the prospect of a longer life.”
Bernice Hurst asks, “Can/should retailers encourage and sponsor such education programs to inspire consumer loyalty?”
As far as I can tell, if there is a country in love with its gardens, it is the UK, so this should be a hit with the parents and the teachers.
Pre-teens certainly don’t mind getting dirt under their fingernails, so it should appeal to them as well.
Whether this has any tangible impact on Waitrose’s image and business remains to be seen but, then, some things should simply be done because they are the right thing to do.
The RetailWire discussion is here: Looking at Literal as Well as Figurative Growth, and the Independent article is here: Digging for victory: Schools back gardens plan.
Devangshu Dutta
March 13, 2009
The Indian consumer market remains one of the most attractive and sustainable markets for international companies. It has even been described as a market of a lifetime by some, meaning that a brand can live through a whole lifecycle of decades if it launches in the market today. The last decade has made the Indian consumer even more visible and desirable to consumer goods companies from around the world.
So it is hardly surprising that many international food and beverage brands have entered the market in the last few years, either by appointing wholesalers as their distributors in the market or, occasionally, establishing a more direct presence through joint ventures or subsidiaries.
These companies have been helped along by the growth of modern retail chains. These offer a familiar sales environment to most of these companies who sell through supermarket and hypermarket chains in other countries.
However, the market presents international brands and their distributors with two challenges.
First, the question whether they should stick to only selling through the more “organised” retail chains. If they do so, they could focus commercially on a limited number of larger business accounts, and service them efficiently as they do the large retailers in other markets. It would also provide them – in the Indian context – an upmarket environment where the display and promotional means allow a more premium positioning.
However, even the largest store chain has a limited footprint, while India’s vibrant mom-and-pop retailers form a much larger platform and continue to reach out to a much larger market than the modern traders. So by focussing on the chain-stores alone, international brands would miss out on the majority of the Indian consumers who do not have a chain store near them, or choose to continue shopping at the traditional stores.
On the one hand you might think that it is logical to reach out to as many customers as quickly as possible. On the other hand, “foreign” equals “exotic” in the dictionary, which equals mysterious, interesting, glamorous and so on. So some of these brands actually benefit from maintaining an aura of exclusivity, and it helps if their distribution is limited.
This challenge, therefore, needs to be addressed by each company specifically, keeping its brand and business objectives in mind.
The second concern is more widespread and includes both the branded supplier as well as the retailer, whether chain-store or traditional mom-and-pop. It is a given that the international brand will share a store environment with local brands. Unless, of course, an international brand creates a separate exclusive branded store (easier to do in fashion and lifestyle products than in food and grocery), or it is only sold in stores which sell only foreign merchandise (of which there are very few).
So the second question is: in the shared retail environment, should the international brands be mingled with local brands and products, or should they be displayed apart from local brands? This question is relevant even if a brand is only present in the modern Indian supermarkets.
Prices of imported merchandise of international brands tend to be high, because the base price can be high to start with, and import duties and other costs push the price up further. So a popular option so far has been to bunch imported brands together at the retail store on one or a few shelves. The reasoning is that these are speciality products, expensive and with a limited consumer base. Shoppers who know about these brands will seek them out, and they are likely to also shop for other imported brands at the same time, so it makes sense to display them together.
Some brands are happy with this display strategy, because it makes a clear statement that their brand is a premium “exclusive” brand, and it prevents a one-to-one comparison with lower priced local competitors.
However, brands that want to be visible to a wider set of consumers would be unhappy with this arrangement. Their take would be that by bunching high priced merchandise together, the retailer is creating an area which becomes a dead zone that is avoided by most shoppers. Thus, a brand that could be otherwise sold to more consumers is forced to become a niche product due to the limited visibility.
Regular readers would know that our approach to creating or judging strategy is dogmatic only in one aspect: “to avoid the cookie cutter”. Whether you’re selling meat snacks, exotic meal packs, kettle chips or iceberg lettuce, multiple factors determine whether a particular international product should be segregated or displayed alongside local brands. And that strategy needs to be dynamic.
The first factor to consider is how familiar is the product itself to the customer frequenting the store. Let’s take an imported salsa as an example. In a location where the customers may not be familiar with Mexican cooking, it makes sense to not just display tortillas, salsa, sour cream and beans together, but also to offer samplers and give away recipes. While the salsa may be of an imported brand, the beans may be of an Indian brand, and the tortillas and cream may be from a local supplier.
In this case, where each component of the meal originated is less important than the fact that the complete meal needs to be presented together to the customer. Putting the imported salsa with other imported products when most of them may not be sure how to use it does not encourage customers to buy it.
In any case, as familiarity increases with time, the product may become more widely available, other international and national brands may also appear on the shelves, and segregation becomes a non-issue.
The tendency of the store’s consumer to compare and decide on the basis of price – as mentioned earlier – can also be an important factor. In some cases, the product may need to be insulated from this comparison, and placed in a defined area with other high-priced imported brands. In other cases, if the brand is strong enough to stand on its own, it could be placed in high-traffic locations with higher-volume lower-priced brands.
The overall store positioning and product mix have a very large role to play in the decision about segregation. If a supermarket has an upmarket catchment, and carries a higher proportion of premium products, intermingling may be the norm rather than an exception. The customer who is serving herself would probably find it most convenient to have the local and imported baked beans or olive oils displayed together. The price premium may even play to the imported brand’s advantage in such upmarket environments and catchments, conveying some form of qualitative superiority.
If a store has a wide enough assortment of imported products which are significantly higher priced than local variants, then it may make sense to do an “international corner”. But for this to work, the customer base must already be reasonably aware of the individual products being sold. The international corner also needs to be kept fresh, with new brands and new varieties of product to keep the foot traffic alive and the products moving. Even then, “packaged solutions” and demonstrations are needed to maintain visibility.
Let’s understand one fact – people adapt exotica into their consumption culture so deeply until it you can’t differentiate between the local and the international. Indian cuisine would be incomplete without potatoes, chillies and mangoes. However, the varieties of all three crops available in India today are reported to have been brought from the Americas and west Asia a few hundred years ago. Among companies, Colgate, Vicks, Horlicks and Bata are all international brands that Indian consumers commonly accept as their own.
Most international companies want to target the millions of Indian middle class households, but their pricing, distribution and retail strategy is too exclusive, conservative and totally contrary to this objective.
Our suggestion would be: go out as wide as you believe is appropriate, because being invisible does no good to the brand. Put your exotica within the reach of the consumer, alongside competing local products.
As long as you’re prepared to support the brand, and sustain efforts to encourage consumers to try the product, there would be a time when your brand is no longer treated as exotic. And that would be a good thing, if you’re looking for large numbers.
