Knowing When Something is Strategic

On September 26, I blogged about the distinction between a strategy and a tactic.  In short, a strategy is a plan that describes how resources are organized and focused over the long haul to achieve important aims.  Tactics are the actions that bring a strategy to life.

 

A strategy without action is not useful.  Likewise, tactics performed in the absence of a coordinated plan are like closing one’s eyes and throwing a dart at the board in hopes of hitting a bullseye.

 

I also emphasized that, though we may not realize it, the vast majority of us spend our waking hours executing tactics - not creating strategies.  That’s ok.  After all, tactical execution is what makes strategies work.

 

Of all the tactical actions that a firm takes, some of those actions are so important to the success of the firm in the market that they are said to be strategic, i.e. critical components of the firm’s plan.  All strategies are comprised of tactics; but not all tactics are strategic to the firm.

 

The Canary in the Cage

There’s a simple test to tell if a tactic is vital to the success of a strategy: simply stop doing it and see what happens.

 

If a tactic is critical, stopping it (or altering it in a significant way) will soon affect the firm’s performance.  If the tactic is not integral to the firm’s strategy, then the strategy will continue to perform (though perhaps with some inconvenience or inefficiency). 

 

To illustrate this, look no further than what happened to Coca-Cola when it altered its taste formulation in 1985, weeks later, they were forced to introduce Coca-Cola Classic in response to consumer backlash.  Or, more recently, consider what happened when Netflix changed its pricing model, and then decided to separate its streaming and mail order businesses.

 

Looking at What We Do

Working at something that is recognized as being essential to a firm’s strategy translates into job security.  Being great at it is the best job security one can have.

The $10B Social Media Ad Gamble

With worldwide spending on advertising expected to reach $500 billion in the next year, it is both a big industry and a major component of marketing spend.  In the 15 years since the internet hit the mainstream, the industry has undergone significant change.  Now, with the rapid rise of social media, the difficulty in effectively allocating advertising dollars has ratcheted up a notch.

 

Advertising Fun Facts

To understand why, let’s begin by examining baseline spend on all forms of advertising.  The table below shows expected 2011 advertising spending (worldwide and for the U.S.) for all media, the subset of online media, and its subset of social media.

 

 

	Global Spend $B	Yr/Yr Growth	U.S. Spend $B	Yr/Yr Growth	5-Year Annual U.S. Growth
All Media	480	3.7%	175	3.8%	3.8%
Online	80	16%	33	18%	14%
Social Media	5.5	146%	3.0	148%	35%

 

Sources: eMarketer, GIA, IAB, Kantar Media, ZenithOptimedia

(Caveat: individual forecasts disagree markedly among themselves and, as with all forecasts, one needs to judge which method seems the most reasonable.  Example: For 2011, the range of global ad spending is a low of $460 million and a high of $492 million.  The discrepancy widens over the term of the forecast horizon.  For the purpose at hand, medians are used.) 

 

In round numbers, online media will soon account for almost 20% of all advertising spend, and is expected to grow in the U.S. by 14% annually through 2016.  The expected growth through 2016 for social media spending (forecasters are cautiously sticking their necks out on this one) is expected to come in between 30% to 40% annually (the midpoint of 35% appears in the table).  Why the broad range?  There are simply too many unknowns with social media advertising: it’s short of history, and long on experimentation.

 

Within two years (2013) forecasters are comfortable calling out a global spend in the neighborhood of $10 billion - with half of that spent in the U.S.  Here is one outlook.

 

 

$10B is a Big Number

Compared to an expected worldwide spend on advertising of over $500B by 2013, $10B seems a mere drop in the bucket.  Here are some benchmarks, though, that put this $10 B figure in perspective.  

$10 billion is about the same as:

• All U.S. online ad spend in 2004
• All U.S. online display advertising in 2011
• All banner ads purchased worldwide in 2011
• The expected total of all U.S. Classified newspaper advertising from 2010 to 2016
• Expected 2011 U.S. online ad expenditures by the computer, financial services, and automobile industries combined.

The $10B Allocation Gamble

From initial online advertising in 1994/95, it took 10 years for the U.S. to reach an aggregate spend of $10B - a period of considerable trial and error (much of the latter).  With new media it often takes years to understand the frameworks and best practices that determine effective promotional spend, and to acquire and refine the skills to pay it off.

 

Social media ad spend is no different - and, arguably, even more challenging to get right.  Shifting ad funds from one medium to another is easy.  Getting the same - or better - performance from those re-allocations is not.  Those who experiment and run by gut instinct are indeed taking a gamble.  Those who approach the opportunity with vigor, and a systematic method of allocating, monitoring and tuning ad spend have the odds in their favor.

 

Managing advertising spend is similar to managing an investment portfolio: one must arrange the portfolio to support strategic goals, then manage it to keep it on pace to achieve those goals.

Effective management is a matter of: 

• having concrete, reliable and valid performance measures
• testing market behavior and planning assumptions before diving in (measure twice; cut once)
• establishing performance milestones at short intervals to determine if programs are paying off as planned

There may as yet be proven certainties in social media advertising, but systematic management can keep it from being an expensive object lesson.

The Problem with Soundbites

Part 2 in a series about the nature and principles of value propositions, positioning, and competitive advantage.

 

Recap - Value Proposition

Firms exist to create value for customers and, in doing so, compete in the market to earn a profit and achieve the goals of the firm.  A value proposition describes the ability of the firm’s offering to provide greater value to its target customers than the offerings of its competitors can.

 

Those last two words are highlighted for a reason.  The same offering can represent different values to different customer segments, depending on the specific needs of each target group.  In fact, what is valuable to one target market may have no relevance whatsoever to another target market.

 

Like beauty, value lies in the eye of the beholder.  Sales people - especially those who sell complex products to B2B customers - readily recognize this.  A good sales person is skilled at eliciting a buyer’s needs and motives, and then adapting the sales presentation to focus on the attributes of the offering that best fit the buyer’s needs.  Other attributes, no matter how appealing they may be to other buyers, are kept in the background.

 

The Problem with Soundbites

There’s a reason mission statements are crisp: so that they clear and memorable. 

 

It’s hard, though, to find a simple statement that aptly and fully describes a firm’s strategy.  For example, one can say that a firm’s strategy is “to be the low price leader in its industry.”  It’s a convenient shorthand device, but it says nothing about the tactics that shape the strategy.  How are costs kept low?  Is quality traded off to achieve low price?  Are assortment and variety constrained as occurred with the Model T - any color you want as long as it’s black?  Or perhaps the offering is only distributed in urban areas, and not outside.

 

The shorthand form can only be correctly interpreted when it is accompanied by a detailed description of the tactics used to achieve the strategy of low price leadership.  It is much the same with articulating value propositions.

 

Marketers are expected to come up with a memorable and effective soundbite that captures the essence of the offering’s core value.  Just like Apple did with the iPod: twenty thousand songs in your pocket.  But, too often, it is left like that - a catchy soundbite with very little back-up substance.

 

A value proposition soundbite left standing on its own, no matter how catchy, is just like a strategic soundbite: leaves a lot open to interpretation.  And it won’t earn any marks with the sales force.

 

From Soundbites to Value Maps

You can be sure that Apple did not print up cards printed with 20,000 songs in your pocket, hand them out to all their retail sales people, and then tell them to sell a boatload of iPods.  And if they have such a card as part of the iPod product intro, you can be certain that it did not stand on its own: there would have been plenty of back-up material.

 

Value maps are like strategic maps.  Value maps show the linkage of every relevant attribute of an offering to the needs of each target market.  If there are 5 target markets, then 5 value maps are needed.

 

A value map relates relevant and strong attributes of an offering (compared to competitive offerings) to the needs of each segment.  In the case of B2B customers, and increasingly consumer targets, detailed profiles are given that describe key purchase drivers along with effective ways to link the offering’s attributes to each of the drivers.

 

Constructing effective value maps takes good research and effort.  But the results are worth the effort.  Your sales personnel will be the first to thank you for them.