Life Cycle Thinking – A Simple Framework for Product Portfolio Analysis

At some point in your marketing duties you may have to participate in a project where you have to analyze a product portfolio in terms of its life cycle, revenue growth or decline, new products for emerging markets, and the difficult “divestiture” product discussion.   Whether you are a VP / Director of Product Management,  Product Line Manager, or a CMO leading a cross functional strategy team, the  understanding of a complex portfolio of products at a business and technical level across many organizations is a challenge.  There is the technical view from engineering and product management that manifests itself in lists of features in a release schedule, the revenue and profitability view from finance, and the strategic view of market growth, maturity, and decline.  Overall, how do you prioritize budgets and resources for the individual product lines beyond just simple revenue and sales pipeline metrics?  You need an “organizing concept” to frame the overall discussion and provide a common language and understanding of the current portfolio’s situation – a least common denominator of understanding across engineering, marketing, sales, finance, operations, and service organizations.   We have discussed in a previous post of how important a product line’s Business Model definition is for successful planning – this is a step that must come before any analysis or activity.  The following is a method for analyzing a company or business units product lines in terms of its life-cycle – a “framing” method to set a strategic product line discussion.

Product Lifecycle

Product life-cycle

A simple methodology to “frame” the product line portfolio analysis can be summarized in three steps:

Step 1.  Create a Product Line Metrics Matrix – include relevant business and market metrics including market share, growth, % of revenue etc. (see below)

Step 2. Based on your Product Line Metrics Matrix determine where each product line falls on the Product life-cycle curve – introduction, growth, maturity, and decline.

Step 3.  Based on steps 1 and 2 create a “Product Position and Market Attractiveness Matrix” matrix to help determine the broad strategies for each product line – “build”, “hold”, and “harvest”.

Note that this is a “framework” to set a strategic discussion and cross functional understanding but not a complete product line analysis.  This will set your baseline business understanding for subsequent analysis and recommendations.  One of the challenges with this method is the interpretive and subjective nature of the steps – keep this in mind when creating the tools.

Product Line Metrics Matrix.  This is a simple matrix that sets the foundation and context.  The basic information in the matrix, however, can be very insightful when laid out in this manner.  Many times in cross functional team analysis obvious issues are hidden in detailed discussions and opinions that make it difficult to see the big picture clearly.  The tools in this discussion help raise that level of discussion to a simplified strategic business view with a common understanding across diverse functional perspectives.

Product Line Metrics Matrix

Figure 1. Product Line Metrics Matrix

Each column represents each product line and has the following information:  First we compare the market CAGR growth / decline both from an industry analysts and internal point of view.  Industry Analysts estimates at times can be too aggressive or conservative in terms of market growth or decline so its important to compare these estimates to your own internal growth or decline percentages.  This is important information for when we start building the Product life-cycle graph as we will need to place the product line in a growth, maturity, or decline phase.  Next, we look at the product line’s market share and % of revenue.

In the Figure 1 above its obvious “at a glance” that the majority of the revenue of this business unit is derived from product lines that are in decline in terms of market CAGR.  It’s important to note, however, that the product lines in these markets with negative CAGR are the “cash cows” of the portfolio.  This highlights a problem for the business unit that sets the context that everyone gets in an instant.  Once we have completed this matrix we are ready to build the product life-cycle graph.

Product Life Cycle Graph.  The next step in the analysis is to construct a product life-cycle graph based on the information from the Product Line Metrics Matrix.

Product Life-cycle Graph

Figure 2. Product Life-cycle Graph

The life-cycle graph is really just another “at a glance” view of the product portfolio situation and context.  In figure 2 the majority of the business units revenues are derived from product lines that are in decline in terms of product life cycle.  (We are assuming a common product life-cycle curve in this example.) 25% of the products lines revenues are based on mature product lines while 30% of revenues are based on product lines in growth phases.  Obviously, in the out years this business unit will have issues maintaining profitable revenue growth – or it already may be a reality.  One caveat here: this is not an absolute analysis (i.e. its both qualitative and quantitive) and there are the grey areas between product maturity and decline for example.  Use this framework as a guide in your overall analysis and context setting.

From these two simple tools we can communicate quickly the product line issues that need to be addressed at a strategic and business level.  This should begin to raise your team’s discussions from a granular “in the weeds” view to a collaborative business problem solving discussion. The final tool in our “framework” is the “Product Line Position and Market Attractiveness” matrix.

Product Line Position and Market Attractiveness Matrix.  This is an adaptation of a technique used to compare various business units and develop broad strategic mandates for capital use.  In our case we have adapted the tool to cover product lines and the broad strategies applied depending on how the product lines fall in the matrix.

Product Position and Market Attractiveness

Figure 3. Product Position and Market Attractiveness

The two axes in this approach are the attractiveness of the market and the competitive position of the product line.
  Where a particular product line  falls along these axes is determined 
by an analysis of that product line and its market, using the following criteria:

Market Attractiveness: Market Size, Growth, Competitive Structure, Profitability, Technology Evolution

Product Line Position: Market Share, Vendor Position, Profitability, Margins, Technology Position, Market Awareness

Depending on where a product line falls on
 the matrix in Figure 3, its product line approach is either to invest capital and resources to 
build market position, to hold by balancing cash generation and selective 
cash and resource use, or to harvest or divest.  Expected shifts in market attractiveness or product line position lead to the need to reassess strategy. A 
business unit can plot its product portfolio on such a matrix to insure
 that the appropriate allocation of resources for each product line is made.

As we all know resources and capital are not infinite in any size company and the prioritization of product releases, resources, and budgets for a particular product line can be wrought with inefficiency, opinion, and short-term sales pipeline view.  As we step through our life-cycle process we can begin to make more informed decisions on prioritization efforts.  In the above example product lines 3 and 6 would get priority for resources and capital since we have classified them with a “build” strategy.  This does not diminish the importance of the cash cows classified with a “harvest” or “divest” strategy for product lines 1,2, and 4 since this is the cash engine that is driving current investment and growth.  However, in a harvest strategy we employ cost reductions such that we can still maintain profitable revenue that is used for growth.  We may decide to outsource much of the development of these product lines or some of the assets could be divested and sold to a private equity firm to generate cash and re-investment into the business.    The market attractiveness / product line position matrix is less precisely quantifiable requiring inherently subjective judgments about where a particular product line should be plotted, however, combined with the above matrix analysis one can develop the credibility of the tool to help in resource prioritization discussions for future investment.

The above frameworks can act as an “organizing concept” to frame your overall product line strategy discussions and provide a common language and understanding of the current portfolio’s situation.  It can provide a simple “at a glance”  least common denominator of understanding across engineering, marketing, sales, finance, operations, and service organizations that can serve to foster collaboration, cross functional team problem solving, and driving the next phase of detailed execution plans for success.

Social Media Math – Searching for Viral Value in the Intergalactic Social Universe

With the  Facebook announcements of an IPO target date and the acquisition of Instgram the heat index on Social Media has moved beyond boiling.  Freshly minted Social Media consultants are replicating daily and a newly released report , 2011 SOCIAL MEDIA MARKETING INDUSTRY REPORT, by the Social Media Examiner feeds the social media excitement.   One of the charts that caught my eye in the Social Media Report was “Benefits of Social Media Marketing.

Figure 1. Benefits of Social Media Marketing, Courtesy Social Media Examiner

The respondents cited benefits that ranged from increased awareness, increased web traffic, increased leads, and increased sales.  It should be noted that the majority of respondents were self-employed or employees of a small business.  The survey results at first glance would prompt any marketer to shift a major portion of their budget to social media marketing.  However, these survey results are responder perceptions so the inquiring minds of many marketers want to understand the analytical basis and data for such assumptions.

Some recent social media marketing studies seem to contradict the above perceptions.  For example, in this past holiday season only nine per cent of the 1,000 people polled in the Baynote study purchased something via a retailer’s page on Facebook. While 59 per cent of Americans bought a gift directly from a retailers’ website. Moreover, a large majority, 80 per cent, of shoppers said personal connections or recommendations on social networks had no influence on their Holiday shopping decisions.  This latest commerce trend is also termed “F-Commerce” and one has to ask the question did you join Facebook or any other social site to buy products?  There are many other examples including the annoying “follow” or “like” Pinterest notifications that are flooding my inBox that ultimately point to, for example, an offer for a gift card from “The Cheesecake Factory”.  I am not a patron of “The Cheesecake Factory” and never will be especially after being spammed by them on Pinterest.

The study shows that social networks have a fair way to go before they really influence the world of commerce and shopping. Most major retailers now have a Facebook page, Twitter account, Pinterest Boards and Pins, and a Google+ page. But it is still early days for businesses on these services, as they figure out how best to use them and much time should be dedicated to the output on each one.

Of all the social media platforms Facebook is by far the obvious leader in terms of number of visitors and time spent on the site.  The chart below illustrates the point requiring a finer grain chart of other platforms such as twitter, linkedin, flickr, Instagram, and the near dead myspace to note the  comparison to Facebook.

figure 2. Daily Unique Visitors Social Media – Google Trends

However, the ultimate assumed value of social networks such as Facebook is akin to the popular notion of “viral marketing”.  Synthesizing and influencing individual actions into a pattern of aggregate behavior that results in some “influenced” action e.g. a purchase or a vote that cascades or propagates throughout a large social network.  The academic research sometimes refers to this as “social contagion” because it spreads from one person to another in the style of a biological epidemic.  Therefore as marketers we need to appreciate 1) that social media marketing today is not equivalent to “viral marketing”, 2) the complexity of the mathematical and social models that underly the above behavioral assumptions, and 3) realistic budget allocations for social media marketing based on what is possible today vs. what is assumed.   The following section is a brief review of academic research and the underlying models.  It is not intended as an exhaustive review of current research but to highlight key points for understanding and decision-making.

Research and Underlying Models

Information flow in social networks citied in academic research is based on the analogy between spreading an infectious disease and the dissemination of information.  This analogy was mathematically formalized by Daley and Kendall and became popularly known as the Daley-Kendall model.  Similar models also can be used to describe other network behaviors including computer virus propagation and neural network connections within the brain.  Some striking representations from my image searches below illustrate these concepts.

figure 3. Network connections in the human brain and social relationships

The left side of the figure 3 images, cited by Scientific American, are from a study  in The Journal of Neuroscience,  where researchers used MRI scans to map brain activity in 21 people.  Consciousness and healthy brain function appear to emerge not from neurons, but from the networks linking them together.  Analyzing the MRI scans found that the areas with the most connections—the hubs—were more strongly connected to one another than to other, less popular regions.  These “networks” and principles are analogous to patterns and structures in social networks.  On the right side of figure 3 – the top right illustrates the popular regions and “hubs” of a sample of 20K users and connections in the twitter social network and the lower left illustrates the “hubs” and popular regions and within a sample social network provided by FMS Corp.

What are the underlying models that describe the dynamics of information propagation through a social network and how might these principles be applied, for example, in propagating marketing messages through such a network?  A good proxy for this model is the research of how rumors spread throughout a social network.   The study “Rumor Propagation Model: An Equilibrium Study” Roberto C. Piqueira  used  the ISS (Ignorant-Spreader-Stifler) model a generalization of the DK-model, as the basis for how rumors are propagated throughout a social network.  Information propagation depends on how members of the population (nodes) are connected.  The basic model  sorts the population into three groups: ignorants, spreaders, and stiflers. Ignorants are the individuals who have not heard the rumor and, consequently, are susceptible to being informed.  Spreaders are active individuals that are spreading the rumor and the stiflers know the rumor but are no longer spreading it.

The dynamic behavior of the rumor spreading process depends on how spreaders meet ignorants. When an ignorant meets a spreader, they are turned into a new spreader.  In the process the spreading of the rumor eventually decays due to a forgetting process or because spreaders find the rumor has lost its new or novel value.  Piquerira’s numerical experiments conclude the majority of the population become stiflers while the number of spreaders soon vanish.   Therefore the propagation of the rumor or idea does not form beyond a small concentration node or group of spreaders illustrating the difficulty of propagating a rumor or idea throughout the greater social network.

Another study, “Deciphering the Watercooler Effect” by Dr. Nicholas DiFonzo of RIT, found that beliefs and attitudes are based on: 1) Strength of influential sources—You are more likely to believe a rumor told by a friend or family member,  2) Immediacy of influence—Rumors often take hold in close-knit, homogeneous neighborhoods and communities. 3) Number of sources—The more people in your network there are who believe a rumor, the more likely you will believe it.

Based on this, DiFonzo developed the MBN-Dialogue Model of Rumor Transmission, where rumor spread is based on the motivations (M) for spreading the rumor, the strength of belief (B) in the rumor, and the novelty (N) or newness of the rumor.  Again, we see the newness or novelty of an idea is important in the propagation of an idea or rumor in social networks.   A key finding for this study found rumors propagated where groups of individuals are clustered together into clumps or cliques and had few connections to other groups in the larger network.   This introduces the idea of proximity in social network dynamics – information tends to flow within small clustered groups and not the entire network.   Again, as in the Piqueria experiments information, ideas, or rumors don’t propagate throughout the entirety of a large social network but tend to remain in close proximity to the person (node) who originated or spread the idea.

A  final study,  “A Measurement-driven Analysis of Information Propagation in the Flickr Social Network”  by Cha, Mislove, and Gummadi,  was based on crawls of the favorite markings of 2.5 million users on 11 million photos, seeking answers to three key questions: (a) how widely does information propagate in the social network? (b) how quickly does information propagate? and (c) what is the role of word-of-mouth exchanges between friends in the overall propagation of information in the network?

figure 4. The Flickr Social Network

The researchers concluded; ” Contrary to viral marketing “intuition,” we find that (a) even popular photos do not spread widely throughout the network, (b) even popular photos spread slowly through the network, and (c) information exchanged between friends is likely to account for over 50% of all favorite markings, but with a significant delay at each hop”.

What the researchers data analysis revealed were several interesting facts about information propagation in Flickr. They found that most information does not spread widely throughout the network: while it is intuitive that many “personal interest” photos of an individual’s family and friends will have highly localized appeal, they found that even the more popular photos have substantially limited popularity outside the immediate network neighborhood of the uploader.  Key points here are most fans of a given picture are within a few hops of the picture uploader and second, pictures spread slowly throughout the social network.  This is very much aligned with the conclusions of the previously cited research – ideas propagate in social networks in close proximity to the origin and have limited network reach beyond these bounds.

An interesting discovery to note was that the distribution of fan photo popularity showed that millions of pictures have fewer than 10 fans in the entire network, while an order of magnitude fewer pictures (252,126) have more than one thousand fans.  This means that only a small fraction of pictures achieve high popularity and thus have the potential to spread widely through the social network.  We can term this the  Esse est percipi marketing problem:  “If a tree falls in the forest and no one is there to hear it, does it make a sound?” – George Berkeley.   Millions of “trees”  fall in the intergalactic social network forest and most are not heard.

Conclusions

The popular notion of “viral marketing” being equivalent to social media marketing is greatly mis-understood.   Your Facebook AD will not go viral – you have the same odds as winning the mega-millions lottery.  We’ve seen supporting evidence in the academic research on information propagation in social networks as well as marketing studies of “F-commerce”.  The Facebook AD creation and control is based on very coarse grain demographics – not on network mathematics.

While the Facebook user base of 900 million and growing may seem like a marketer’s dream the results in practice don’t usually live up to the survey promise and hype.   There are certainly success stories of “like” campaigns for a 20% discount coupon, famous celebrity Facebook pages endorsing products, fan club Facebook pages etc. however, this is not viral marketing but an extension and evolution of current on-line marketing today.  Social media platforms such as Facebook are very efficient at re-enforcing the brand and customer experience after the sale much like user groups in Peer Marketing have achieved in the past.   Social Media can also efficiently drive traffic to your e-commerce and websites thus re-enforcing and enhancing your overall marketing campaigns.  However, despite the excitement, neither the characteristics of information propagation in social networks nor the mechanisms by which information is exchanged are well understood to take social media marketing to a deterministic viral marketing level today.

This has implications for marketers, as companies grapple with their images and the popularity of their products among the social network noise.  As we have seen information propagation is more likely within a close-knit network of “like-minded” individuals, but the larger benefit  of how information can cross over to a slightly broader audience remains a challenge.  Perhaps the most important question is whether any company’s marketing message is “novel” enough to get the support it needs to propagate even within the tightest knit groups and networks.

You can’t “Buy” Industry Analysts

The inBox of a CMO, at times, is a virtual “suggestion box” of misconceptions.  One of the most common misconceptions goes something like this; “we need to increase our industry analyst budget so we get better rankings for our products”.    Nothing can be farther from the truth in the quest for that “magical” square.  The foundation for an overall positive analyst evaluation derives from how you well describe your Business Model and the progress your company is making in terms of the execution of that Business Model.  Needless to say this is a cross functional process and not exclusive to marketing – the CMO’s peers are just as responsible.

You can't buy Industry Analysts

You can't buy Industry Analysts - prove your business model

Note that we are highlighting the Business Model and not technology or product.  Technology and Product are important in the overall context of an analyst’s evaluation but if you can’t demonstrate progress in terms of increasing customers, revenue, or other key elements as a metric against your Business Model then no sleight of hand or “increased” analyst budget is going to make any difference in your overall ranking for a particular product or market segment.  There certainly are isolated cases where either side has attempted an unscrupulous act or hired a small boutique firm as a “work for hire” to create a positive analyst report.  In general, however, the best path to success is to follow the best practices of interacting with Industry Analysts.

Analyst Relationships and Briefings.  They key concept here is a “Relationship” at some personal level.  This is not the annual RFI/RFP response and briefing but a continual interaction and sharing of information of your insights, customers, and progress throughout the year both formal and informal.  And please forget the 150 page slide “lecture” deck.   Analysts don’t respond well to these types of briefings – have a discussion and ask advice and have meaningful exchanges of information about avant-garde customers, use cases, and directions in your market segment.   Give value to the analyst and establish yourself as a “go to” person for opinion.   At a minimum this is a 12 month cycle of planning and interaction.

Prove your Business Model:  The key element here is to clearly identify your customer segment, channel, partners, strategies and plans to realize the model.  You have to demonstrate strong customer relationships and how your product or solution has helped create business value.  This is not a case of handing the analyst a stack of “case studies” but an insightful discussion of the customer’s use case, success, and how it relates to your value propositions (differentiators) at a detailed level.  The ideal is to name your internal customer champions and companies.  At times this can be difficult as many of the larger Fortune PR departments have policies against disclosing vendors they use in their operations.  You can handle this as an “unbranded customer discussion” or under mutual NDA – most likely part of your analyst agreement and contract.   Analysts always want to talk directly to your customers so they can get an “objective” view.  Again this can be under NDA or public if your customer agrees.  You best bet for success with analysts are the discussions with happy customers and fans.

Cross Functional Process:  You need to get your peers involved with analyst briefings since they are also participants in the overall Business Model execution.  They can be introduced as participants during formal briefings or in an informal setting.  The office of the CTO, R&D, Sales, are important but don’t forget the CFO and Services.  Analysts always like to meet and interact with other executive team members including the CEO.  By having your peers involved with Industry Analysts you are giving transparency to the overall process and getting their support in the success of the overall analyst program.  Your peers will also feel “ownership” and will help to dispel the misconception of “buying” analysts.

Differentiators and Value Propositions: There is the inevitable detailed technology and product discussions but the “script” to this briefing along with your technology participants should be the Business Model within the context of the Value Propositions.   Don’t loose this perspective when drilling down to technical features and functions – always refer back to the business context you ultimately describing.

Competition Discussion: Do not assume you know the technical details of your competitors offerings.  Perhaps you have some current information of shipping product today but this isn’t what your competition has been discussing with Industry Analysts – they have been briefed on the future product roadmap and you have no insight into those details.   Therefore, don’t create a matrix table that compares detailed technical features of your offering against your competitors – you will lose credibility.  Always acknowledge your competitors, keep it respectful, and highlight the known differences in your business model vs. your competitors.  The shortcomings of your competitor will be highlighted within the overall business model discussion context – this is a multi-dimensional competitive analysis.

Perhaps in the future with advances in big data analysis, graph theory, game theory, link analysis, and social media we will be able to create a “virtual industry analyst” and dis-intermediate the current analysts and firms but that won’t be happening in the near future.  You need to establish a close business relationship with industry analysts, include your peers in the process and briefings, and ultimately show progress against your Business Model.

Inverted Funnel Thinking

In the “early” stages of a startup or new product direction in a large enterprise you are faced with the challenge of building the traditional marketing and sales “funnel” from ground up.  The typical product marketing funnel sequence of inbound and outbound activity required to generate first time purchases begin with launch, advertising, and  awareness that stimulate interest, needs, and action to sales.  The detailed marketing mix of actions for the above requires a large budget and long lead time to execute.  Time and budget most marketing organizations today don’t have.   In many instances, such as a startup, marketing is faced with an empty pipeline with minimal resources that require a different innovative methodology.  The CMO needs to consider an approach of the “inverted funnel” – the process of generating qualified leads that are steps away from a closed sale.

The Inverted Funnel

Let’s introduce a few concepts to frame the thinking around this challenge.   The only purpose of marketing is to make sales so one has to think in terms of sales efficiency or “multiplied salesmanship”.  One of the “cult” marketing books,”Scientific Advertising”, written by Claude Hopkins in 1923 suggests an ageless solution to our inverted funnel problem – talk to prospects and try to sell the product yourself before you launch and create all the necessary inbound and outbound marketing plans. Try out various value propositions until you get the succinct sales argument correct.  In practical terms you have to think in terms of a direct, channel, or retail salesperson depending on your defined business model and channel strategy – see the previous “Business Model” post.

Some would argue that this isn’t the CMOs role to actually sell since this is a “handoff” to a peer’s function.  But in the early days of pipeline building for a new product most prospects don’t know they need your new innovation.   The CMO has to understand the sales challenges and what is required to move a qualified lead through the pipeline to closed sale.  One simple approach is to use our Business Model definition.  Target your customer segment and test the value propositions by using a direct sales team approach; i.e. direct contact with your target prospect segment.    In simple terms this is a combination of an inside and outside marketing sales approach leveraging web collaboration tools, search, and other online business tools identifying target companies and prospects.   Your goal is to set prospect meetings in-person or via web collaboration that can potentially become the early adopter customers that you leverage for future business and marketing growth purposes. And yes, you as the CMO should have the ability and desire to lead these early adopter prospect calls along with the sales and product organizations.  This can be a special marketing team or cross functional marketing/sales team.  The research and feedback alone from this process has tremendous value but you are also building sales pipeline at the same time – super efficiency.  The proposal here is all the marketing activity and social media impact comes after the first early adopter sales to 1) solidify the early adopter brand and customer relationship and 2) use this knowledge to scale and determine an innovative and cost-effective lead generation process after you have proven the initial model and approach.

There are similar approaches in the consumer marketing world (B2C).  Proctor and Gamble have developed an approach called “store back” marketing an innovative “inverting the funnel” approach.  See the article “P&G taking its marketing back to the store” :

http://adage.com/article/news/retail-p-g-focuses-shopper-marketing-ad-agencies/139127/

The brand building, social media marketing, and other related marketing activity come after the purchase to solidify the customer relationship rather than pre-condition the customer to a new product or brand.  Basically, a way to sell a new product to a consumer in a retail context that they never knew existed before or had any “need”  and action them to a purchase.

I have seen many early startup and enterprise marketing organizations take the traditional approach of funnel building and fail to deliver the necessary sales productivity for new products at the other end of the funnel.   The traditional funnel building approach assumes a statistically significant critical mass in terms of thousands to millions of responses to marketing programs yielding an estimated fraction of qualified leads in the final process  – the budget, resources, and scale of activity doesn’t make sense for most marketing organizations.  The “Inverted Funnel” takes into consideration the limited time and budget constraints in today’s challenging business environment and can deliver better sales productivity driven by the CMO and her marketing organization.

Social Media Marketing

You are aware of the increasing use of Social Media in B2C marketing so have decided you need a Social Media Director.  You may not have a clear understanding of why you need this key employee but Social Media is important and everyone is asking about your social media plan as part of your B2B marketing strategy.   The fear of the unknown is driving you to take action.  A recent IBM CMO survey reveals that Social Media is the number 2 issue in terms of unpreparedness for the marketing organization. There is a plethora of Social Media Platforms and an emerging tools and analysis market that can illustrate your “rankings”, “mentions”, and “credibility”  on various platforms such as Twitter, Facebook, LinkedIn, Pinterest, and another 350+ and growing sites.

IBM “From Stretched to Strengthened”

So what should you do?  Most of your organizations have already created a Twitter account, designed a Facebook Page, and have started numerous blogs. Perhaps someone in IT wants to experiment with Hadoop and has convinced you that they can start analyzing big data feeds from Twitter that can give insight into what customers or prospects think about the company and its products.  Actually, the first you need to do is frame Social Media in the overall context of the company’s Business Model and your Marketing Strategy.  As with any new trend or technology there is a predecessor – in the Social Media case it’s called Peer Marketing,

Peer Marketing and Social Media

Social Media Marketing can be viewed as the “virtualization” of Peer Marketing.  Let’s take a quick moment to discuss Peer Marketing since many of you in the marketing profession have been practicing this for many years.   A simple example of peer marketing is the concept of a user group.  Many established companies with a growing installed base have established user groups and have conferences usually once per year internationally and numerous times regionally.

The motivation for a customer to join the user group or attend a user conference is to socialize with their peers and to learn best practices and implementation scenarios and how their peers have generated business value.   The value in becoming a member of the “user group” is to gain knowledge and insight.  There are many other examples of peer or social groups that the customers in your target segment are usually members of in international, national, or local professional associations and organizations. The value to the sponsoring company includes not only sales and lead generation but an opportunity to build customer loyalty and brand.

You can try a simple “Customer Segment” experiment with LinkedIn; go to the advanced search page and describe your “customer” using keywords that relate to your target segment.  You will get a search result of people and you can the pick a sample to view.   Once you select a person make sure you select “view full profile” and as you scroll down to the bottom of their profile you should see the section “Additional Information” and under that section you will see “Groups and Associations”.  This can give you some insight into the groups that you may want to contact as well as give you ideas for the creation of your own groups in your target segment – both in the physical and virtual world of peer and social media.

Some years ago a company where I was CMO had established a CIO advisory council.  I asked the group how they learned about new technology and trends.  Everyone agreed that they  learned from their peers as this was the most efficient and unbiased method.   They also agreed that they did not read vendor emails or take vendor phone calls.  It was all about gaining knowledge through interacting with their peers and learning best practices.  They accomplished this through participating in groups such as our CIO council and other associations and professional organizations.  So as we progress into social media don’t forget about user groups, associations, NGOs, organizations, special interest groups etc. in both worlds of physical and virtual and the value to you in terms of sales, customer loyalty, and brand building.

So, as you think about a Social Media Plan “frame” your thoughts in terms of the value that a prospect would derive from joining a “physical” peer group and then an equivalent “virtual group” such as invitation only in LinkedIn or Facebook for example.   The motivation here is to give a “framework” to think through a Social Media Strategy linked to your overall Business Model and target Customer Segment and how you would communicate with this segment through the “mix” of social media, physical peer groups, web, mobile, and print mediums etc..  You need the strategy and creative thinking first before you start the social media technology implementation details and statement of work.  It seems many companies are doing the reverse because “social” is hot and innovative and will result in magic by itself.   Social Media is important but only in the overall context of the Business Model and target Customer Segment.  There is certainly more value in Social Media beyond the simple “Peer Group” analogy.  The influence opinion of a friend, community, or group that is engaged via Social Media will be embraced differently than through a paid placement – the ultimate goal of social media marketing.   However, in theses early days of Social Media don’t forget to incorporate not only lead generation in your Social Media Plan but also customer loyalty and brand building in the same manner as your Peer Marketing Plan  in the past.

Value Proposition Generation

Referring back to our previous post “The Business Model”  the critical elements to establish in the Business Model discussion for a CMO are agreement on the target Customer Segment and the corresponding Value Propositions for that segment.   Generating and getting agreement with your peers about the Value Propositions, especially Sales, is tantamount for marketing’s success.  Surprisingly, this task is not pursued with the rigor and importance required within many companies.

Value Proposition Generation

The Value Proposition Framework

What are the offerings you are delivering to the target customer segments that solve a given customer problem in a unique and differentiating way that serves their needs?  The simple model above describes an approach to frame the problem for discussion.   If you can define how your offering is unique, prove it with financial metrics and  customer success,  you can then define the sales argument, RFI / RFP, market segment, analyst briefing, etc. in your terms and have a competitive advantage.  The idea here is not to expound on Value Proposition Generation as there is much information on this subject.

Our discussion is focussed on the consequences of not clearly articulating the Value Propositions and how loosing control of this important process can cause many issues for the marketing organization and the CMO.  Let’s discuss from the world of Tech Startups, for example, the selling process and the critical need for the customer value propositions to be clearly defined, written down, and understood by all involved in selling.

I have seen many situations where there hasn’t been clearly articulated value propositions resulting in the continual seeking of a “go to” person who can help out in a critical sales call and explain what the company provides in terms of offerings and corresponding value.  The “go to” person may be one of the better sales engineers, the head of business development, VP of engineering or services, all with a variation of what the Value Propositions are for the company’s offerings.  If you as the CMO have not been driving this cross functional process then you are minimizing your value and the value of the marketing organization.  Further, the Value Propositions get confusing and ambiguous over time making it impossible to understand the overall value the company brings to the market and customer segments.

It’s impact is significant – think of all the elements that depend on clearly defined Value Propositions: messaging and marketing communications, inside sales scripts, sales presentations, analyst presentations, data sheets, product positioning, SEO keywords, “elevator pitch”, banner ad generation, mobile advertising, tag lines etc.  and the list goes on.  The Value Proposition generation is a cross functional process but must be led by the CMO and her organization.   The CMO’s peers and everyone in the company should be able to at some level to be able to clearly articulate the company’s Value Propositions for a given customer segment.  This makes everyone in the company a great spokesperson and ultimately will help scale the company and revenue.

The Business Model

The average CMO tenure has grown to just over 28 months – forbes.com

Those of us who have spent many years in marketing can relate to the above statement.  The following description of a CMOs responsibilities from Wikipedia highlights the ambiguous nature of the role of a CMO and marketing in general:

With primary or shared responsibility for areas such as sales management, product development, distribution channel management, marketing communications (including advertising and promotions), pricing, market research, and customer service, CMOs are faced with a diverse range of specialized disciplines in which they are required to be knowledgeable. This challenge is compounded by the fact that the day-to-day activities of these functions, which range from the highly analytical (e.g. – pricing and market research) to highly creative (advertising and promotions), are carried out by subordinates possessing learning and cognitive styles to which the CMO must adapt his or her own leadership style.

Rather than debate questions such as “what is marketing” or the differences between product management and product marketing or even who own’s the “4 P’s” we need a better approach to establishing a context for a CMO’s success.  The first step is defining the “Business Model” or the operating model for the business, business unit, product line etc..  Getting agreement among your peers about the Business Model provides “roadmap” for the enterprise and helps establish not only the business context but “how” marketing will support the success and goals of the business.  It provides a “common language” for communicating goals, cross functional coordination, and defining business success across organizations.   There are numerous business model frameworks you can use and its not a goal of this post to review.

An effective and simple model you should consider can be found in the book “Business Model Generation” by Alexander Osterwalder and Yves Pigneur.  The key concept here is really simple – this model starts with the “customer segment” – for whom are we creating value and what are the problems we are solving for this segment?   There are so many times, for example, that you as the head of marketing are coming into a situation where this fundamental question has not been answered or agreed upon by the CEO, engineering, sales, services, finance, etc..  If you don’t get this one right then everything else that follows – including your marketing strategy, plans, and programs will fail.  So as CMO why not take the lead on the Business Model Discussion and get agreement and alignment among your peers and their respective organizations?

So as we step through this simple model (see the enclosed model framework) we establish a common language of the business and how we have to coordinate across organizations – everything is linked.  You establish the value propositions that define the product and services that create value for a specific Customer Segment.  Just think about the importance to marketing of this aspect of the Business Model for a moment.  The value propositions are the foundation for so many aspects of marketing: messaging in terms of marketing communication, positioning, advertising copy, campaign themes, SEO meta tags, one liner banner ads, sales presentations, etc..  Then there is the description of channels and how the enterprise will communicate and reach its Customer segments to deliver the Value Propositions.  Then there are the Customer Relationships that the enterprise establishes with the specific Customer Segments. Revenue Streams define the cash the enterprise generates from each Customer segment.  Key resources describe the most important assets required to make a business model work.  Then there are the Key Activities that describe the most important things a enterprise must do to support the Business Model.  Key Partnerships are the network of suppliers and partners that support the business model and help it scale.  The Cost Structure describes all costs incurred to operate the Business Model.

As a CMO you can see the value of the above “map” in formulating your strategies and activities to support the the overall enterprise business, business unit, product line, etc. model.  Remember that the “Business Model” is a “framework” for thinking and supporting the business and its goals.  Its not a substitute for the detailed  analysis, planning, and execution among your peers and organizations.  However, as the CMO leading the Business Model discussion and its understanding among your peers will certainly help in establishing value for the CMO and her organization as well as helping to establish marketing strategies, goals, and plans that align with the business and its revenue goals.

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