Why Branding Doesn’t Work on B2B Customers

JOHN-WANAMAKER

I’m not a believer in branding being a primary driver of B2B success, which surprises most people, given that my business is all about marketing. But when it comes to closing a B2B deal, I don’t see any hard evidence that branding alone will convince a customer to buy. It is often even questioned in B2C markets, as John Wanamaker (founder of Wanamaker’s department stores) used to say, “Half the money I spend on advertising is wasted. The trouble is, I don’t know which half.”

Of course, branding has its place — particularly for business-to-consumer (B2C) markets. That’s because consumer branding often involves convincing people of things that aren’t necessarily true. B2C marketing efforts are frequently driven by such irrational factors as image, self-satisfaction, fashion, the need to be cool, sex appeal, etc. That’s why consumer marketing generally lives and dies by advertising. Very few consumer products or services can survive without it. Consumer ads, promotions and other image projections often establish the product’s value and create the demand for it.

The B2B world, by contrast, is rooted in the rational. Branding that appeals to irrational or perceived needs just isn’t going to work, because in the end businesses will not buy nor continue to buy things that don’t actually help their business. Marketing your business products and services to business customers demands a different way of seeing the relationship between your product and the prospect, including the hierarchy of benefits — real and perceived.

That’s why we in B2B marketing must rely on a more fundamental tool: compelling business value. The value that you create for a customer is your best asset for appealing to the B2B customer, because the B2B customer believes in facts (aka, verifiable financial proof in the form of ROI).

The task for B2B marketers is to understand what constitutes value for their customer and to create a truly compelling value proposition that a prospective customer will recognize and respond to. The value proposition must be relevant to their actual needs, and expressed clearly and directly. And it must position your offering against your competitors’ in terms of business value, and not features, flashy advertising, or other factors subject to rapid oblivion. Go for substance. If you’ve got numbers, use them. Leave trying to convince people that they will be more attractive if they buy your product to automobile advertising.

Once you have a compelling value proposition, stick with it. Continue to prove it and strengthen it. If it rings true, make it ring louder, make it ring for a wider audience. Even if you get tired of hearing it, your target audience won’t.

In B2B, a brand is built by delivering on the actual value behind your value proposition. Staying true to the promise is really what creates a B2B brand and sustains it as fleeting trends come and go. There’s no better way to increase return on your marketing investment. In the end in B2B, advertising won’t help you create your brand. Once a brand is established, you can advertise to promote it, but a B2B brand is born from your product or service.

What are your thoughts about building a B2B brand? Post your comments below.

Why Sales Reps and Marketers Should Avoid Spreadsheets

Have you ever made calculations in Excel to help convince a prospect to invest in your solution, only to find that a simple data-entry error foiled your analysis?

If so, you’ve got something in common with two economic professors, Carmen Reinhart and Ken Rogoff. In 2010, they published a paper, “Growth in a Time of Debt,” in the American Economic Review.  Based on their data, which they stored in an Excel spreadsheet, they estimated that countries with 90% debt levels experience negative economic growth. Their findings had an enormous influence on the economic community; their data was used widely in economic analysis, particularly during the height of the Greek banking crisis.

Along with the attention, however, came a backlash. And last week, a group of University of Massachusetts economists tried to run the same numbers and ended up exposing the fact that Reinhart and Rogoff made an error in Excel that essentially “caused an entire subset of countries to be excluded from their data set.” Reinhart and Rogoff have since come forward to acknowledge the data-entry error.

In my view, this mishap is a great example of how quickly your credibility can circle the drain with customers and prospects. As Paul Krugman pointed out in his New York Times column last week, Reinhart and Rogoff had already established their credibility with the economic community based on a widely admired book they wrote on the history of financial crises. But what happens to that credibility now that this simple (and avoidable) error has come to light?

business people with chartsIn my mind, the use of Excel in this case is a cautionary tale for sales and marketing professionals. Any company trying to convince customers that its service or product is a sound investment cannot afford to base its business case on numbers generated in a manual spreadsheet. According to a 2008 analysis of multiple studies on spreadsheets finds that “88% of spreadsheets have errors,” and that “Spreadsheets, even after careful development, contain errors in 1% or more of all formula cells.”  A simple mathematical mistake is easy to make, and even a small mistake in a complex financial analysis can throw your analysis off wildly and undermine your credibility.

The fact is, a complex sale typically involves complex calculations. The more faith you put in manual data-entry into spreadsheets, the more you risk making a simple error that could potentially result in a mistaken conclusion. This is exactly why we’re strong advocates for automating calculations in an ROI calculator. Not only will an ROI calculator prevent data-entry errors, many prospects are more inclined to put their faith in numbers generated by a calculator that’s been created by a third-party vendor. The end result? Your credibility stays intact.

For more information on how to build a quantifiable business case with value calculators and ROI tools and to see examples of value calculators, visit www.stratavant.com.

How Good Leaders Think about Strategic Planning

All good leaders want their companies to achieve profitable growth. To get there, you need much more than a set of goals and a business plan. You need a fresh look at your current business situation and an honest assessment of where you can really differentiate.

If you don’t have a clear strategy, here’s what you won’t know about your business:

  • How do we win?
  • When we win, why do we win?
  • What’s our target market?
  • What’s the differentiating factor that allows us to win?
  • How will we leverage that differentiating factor?

It’s not always easy for teams to answer these questions realistically. I can’t tell you how many organizations say, “We win because we have a better sales force,” or “Our product is the best.” Well, no company wins all the time. So if you have the best sales force and the best product, then why do you lose sometimes? Why do you perform better in some market segments than others? And you need to look deeper than just dismissing those segments as the “stupid” customers who don’t see our value, as one of my clients did for several years,

Strategy is about knowing why you’re making a choice to pursue a course of action. And it’s about making that choice when reasonable people could easily have chosen to pursue an entirely different course of action.  “Profitable growth” is not strategic – it is the reason you exist as a company.  And if you have people on your team who would prefer “unprofitable shrinkage,” you have bigger problems.

A good strategic plan is rooted in reality. Or, put another way, it’s rooted in microeconomics. If you can’t differentiate somehow, you won’t like your profitability. You need identify 1) the source of your differentiation, 2) which customers value it, and 3) why they value it. Plans that sound like “try harder” may work in the short term, but will eventually fail if not grounded in an objective view of your current business.

A good leader knows that companies can’t do everything. In fact, you’ll probably get better results if you pare your focus down to just a few critical things. At the end of a strategic-planning process, you want to be able to tell your team, “We’ve decided we want you to focus on doing these two things. Every day, I want you to think about these two things, all year long.” If your output looks like a 24-point improvement plan, you still have some work to do.

Choosing to do some things and not others is scary to some people. Good leaders help their teams commit to choices that seem difficult. As a leader, you always want to know the logic behind why you’re pursuing certain course of action before you ask the team to fall in line.  This understanding starts with an honest assessment of what activities and choices got you to your current state, and how likely those activities and choices will continue to work in your favor.

Have you led a successful strategic planning process? How did insights into the current situation inform your choices? Share your story in the comments section. 

A Tale of Finding New Profitable Growth Opportunities

If you have $1M to invest, in which of the following two opportunities would you invest?

Opportunity 1

This is a consumer electronics product. Currently your business doesn’t have any offerings in this product category. The business case for this opportunity includes these numbers:

Size of the opportunity 600K units @ $250 ($150M total)
Growth rate of the opportunity ~ 12% per year
Competition Sony, Samsung, and Ericson have established offerings
Expected Profitability Millions of dollars of investment so far and all losing money

Opportunity 2

This is a consumer product. Currently your business doesn’t have any offerings in this product category. The business case for this opportunity includes these numbers:

Size of the opportunity > $68B
Growth rate of the opportunity ~ 11% per year
Competition Fragmented (> 40K competitors with largest < 2% share)
Expected Profitability Gross margins > 60%

From a traditional market analysis perspective, Opportunity 2 looks much more attractive. It is a large and growing market. Fragmented competition usually means that there is opportunity for consolidation and brand development. And gross margins more than 60% sound very appealing.

On the other hand, Opportunity 1 is relatively small from a consumer electronics perspective and at a 12% growth rate, it isn’t going to get large anytime soon. The competition consists of very strong global consumer electronics players and they are all struggling to make money. No one in their right mind would choose Opportunity 1 over Opportunity 2, right?

Now consider the fact that Opportunity 1 is actually a view of the MP3 market in 1999, and Opportunity 2 is a view of the retail jewelry market in 2012. I’m sure everyone remembers what happened to the MP3 market in 2000: Apple launched the iPod. In fact, Apple has brought in more than $125B in revenue from devices that have evolved from the original iPod, and the net earnings are now larger than the sales revenue from everything else.

On the other hand, jewelry stores today have very high working capital costs, very high operating costs, very low net profit margins, and high failure rates. No one has been successful in trying to consolidate this market and the Internet is continuing to erode margins.

marketSo, what did Apple see that wasn’t apparent in the analysis above? First of all they saw a set of unmet needs in the market. Back in 1999, there were a few fundamental issues in the MP3 market. First, it was very difficult to get the music onto any device. If the consumer wanted to take the high road, he had to copy the music off of a CD and onto a computer (provided you had the right hardware to do that). Next, he had to convert the music files from .wav format to .mp3 format (which required software and some technical savvy). Then he had to copy the music from his computer onto the MP3 device. The more likely scenario was that you used a music sharing service, such as Napster to get songs in .mp3 format, which was illegal. Thus, in the end for the typical consumer there was a need for a legal, easy, and fun way to have portable music.

The problem wasn’t the MP3 devices; the problem was the music-delivery mechanism. Apple really didn’t attempt to compete with the other MP3 manufacturers on a feature basis. Instead, they opened up an entire portion of the market that wasn’t available to the other MP3 manufacturers by providing iTunes.

In order to properly evaluate the business case for an opportunity, you must first understand the dynamics of the market, identify if there are unmet needs, look for ways to create sustainable differentiation by addressing those unmet needs, and then look at the potential size of the opportunity and potential profitability. Looking in the rearview mirror at the current market and competitors to determine your business strategy will at best set you up to be a little late to market with a product that is almost as good as the current competitors’ products with a higher cost structure, which is a sure recipe for failure.

For more insight about creating a compelling business case and quantifying value propositions, subscribe to our blog — we feature a new post every Tuesday. 

Stop Confusing Business Planning with Strategic Planning

Ever wonder why your yearly plans and new initiatives fail to yield meaningful changes or a bold new vision? Maybe it’s because you’ve confused business planning with strategic planning.

If you’re not sure what the difference is between the two, you’re in good company. Here’s how I explain it to my clients whenever they struggle to separate these concepts.Picture5

Business Planning = “What are we going to do, and how are we going to do it?”

Strategic Planning = “What are we going to do, and why are we going to do it?”

Business planning is a necessary discipline: resources must be assigned, budgets must be set, tactics must be established. A business plan is, “We’ll hire three people in the Midwest region in the second quarter.” The focus is on how you’ll execute that plan (e.g., where will those hires come from, how will you recruit them, what technical skills or relationship skills do they need, etc). To be strategic, however, you have to ask why. In this particular case, you might ask, why three hires and not five? Why the Midwest and not some other region? Strategy is, of the hundreds of things you could do, why did you pick these things? An idea that simply sounds like a good idea (no matter how “doable” it is) is not enough.

You can easily have a business plan without having a strategic plan. And that’s why so many companies with business plans are disappointed with their results. They think they’re pursuing a strategic plan, when really they’re just engaging in routine business planning — focusing on how they’re going to achieve a set of goals, rather than on why they want to achieve certain goals. This traps them in incremental thinking.

It’s important to recognize that goals are not strategy. Goals are easy. We want to be more profitable. We want happier employees. We want to grow revenue. We may even want to hire three new people in the Midwest.

These are all fine aims, but trying to decide whether you want to grow by eight percent or 10 percent isn’t a discussion about strategy – it’s a negotiation about a sales target. Ask instead why you want to grow by eight percent. Better yet, ask why you only grew by five percent in the previous year.

As I say to my clients, you can come up with a list of 10 good ideas and call that a plan. But unless you have a strategy, how do you know there aren’t 10 better things you could be doing? The lesson here is to never attempt to use a specific, measurable goal as a strategy. For example, you might tell your team the goal is to grow by 10 percent. But if your leadership doesn’t ask why you’re aiming for 10 percent, you might not realize that you actually need 15 percent growth to keep pace with the market.

One of my clients spent several years celebrating its success achieving its goals in China, where they were growing at eight-to-10 percent per year. Relative to a U.S. market that was growing at only two-to-three percent, this was impressive. But they eventually realized that the Chinese market for their offering was growing at 15-to- 20 percent per year – they were actually losing market share to increasingly capable local competitors.

Make no mistake: you need to have financial goals and business plans to achieve them. But unless you can answer the “why” questions behind these goals, you do NOT have a strategic plan.

Do you have a strategic plan in place? How is it different from your business plan? Post your thoughts in the comments section.