Marketing and Vision 2020: The Promise of the Nigeria Nation
Discussion at the National Marketing Forum of the Nigeria Institute of Marketing
by Olu Akanmu
Brothers, Sisters and Compatriots.
Overnight, thousands of miles away in America, we watched a presidential candidate delivered and impassioned speech to his nation which he titled the American Promise. About this time last week, in the Far East, in the city of Beijing, we watched the Chinese deliver a major experiential marketing program of the Olympics, and its closing ceremony with the objective of reinforcing the equity of the Chinese brand in business and politics. And bigger for the Chinese, is the promise of China for the Chinese people; that China under its current leaders can restore the ancient hegemony of the Chinese nation in global affairs, make the Chinaman very proud and renew a new sense of patriotism, pride and national identity.
America is a brand with a clear promise to its people as a major constituent. The American brand promise is freedom and opportunity to be whatever you want to be with your GOD given potential. It is the promise which pulls the people of other nations, including our own Nigerian brothers and sisters to emigrate and be part of the American dream. You will notice in the early part of my presentation it, the common language that politics and marketing share,, “ Nation as a brand, the Promise of a nation to its people just like brand promise to customers, national identity or brand identity with a clear brand or national essence”.
Brothers, Sisters and Compatriots. What is it, about the nation such that we cannot clearly articulate a Nigeria dream that truly resonates and endures with the mass of our people? What is the promise of the Nigeria nation to its people, to its business and to its children? We do not have a clear elite consensus, on the Nigeria dream; neither do we have a popular consensus on the promise of Nigeria. Yet, if there is a vision of a national eldorado, a top 20 nation by year 2020, that vision needs to be sanctified by a clear elite and popular consensus on the Nigeria promise. That promise must guide the behaviour of our leaders and the ethics of our nation. That is what great brands do, they behave in a certain way, guided by a clear brand, or national essence which is sacrosanct, which endures over time and every constituent of the brand; politicians, businessmen and workers understands their role in delivery the national brand promise.
It will look to me that our polity including the Vision 2020 program can use more professional marketing expertise, to design a structured and coordinated program of mobilizing our people, our resources and energy towards the dream of a prosperous and democratic nation. Such methods are what Professor Ogwo has brilliantly enumerated in his lecture. The leaders of Nigeria, in politics and business must as professional brand managers understand the promise of the Nigeria nation, its value proposition to its people, the basis for which they have as free citizens submitted themselves to be governed by the Nigeria state. Our leaders as true brand managers must defend, protect and live the values of the Nigeria brand, a Nigeria nation and its promise that guarantees opportunity to prosper and liberty for its citizens. The expression of the freewill of our citizens is critical to choose and elect their leaders just as customers in an efficient market can choose their products with freewill. Free choice and purchase of products and services are the foundations of good markets. Free choice, democracy and liberty are also foundation of a good nation. We must therefore work to strengthen our democratic institutions and the civil society to become genuine and credible platform for the expression of the freewill of the Nigeria people. This will be critical to achieving the Vision2020 objective and the marketing community can clearly play a role in making the dream a reality.
Olu Akanmu
National Marketing Forum
National Institute of Marketing
August 29, 2008
Friday, November 21, 2008
Be Different or Die
Keynote Address by Olu Akanmu, at the book launch of “Nigeria Marketing Memoirs” authored by Mike Awoyinfa and Dimgba Igwe. (May 16, 2006)
The authors that we celebrate today have painted the past of marketing in a memoir; I want to paint the present of marketing in my presentation. The book is a great one, it has been well reviewed. It is a chronicle of the exploits of Kings of Marketing on the shores of Nigeria. It is a chronicle, for the learning of the new generation of marketers, to build on the standards of the past, to celebrate the successes of our elders and to learn from their challenges. It is to this new generation, these new practitioners of marketing who are writing their own history that I wish to direct my epistle. I will be speaking to you today on the contemporary challenges of marketing in Nigeria.
Competition across industries today has never been more intense in our land. The Nigeria economy has become more liberalized and markets are opening up. The international credit rating of the Nigeria economy by Fitch and Standard and Poor, that puts us in the same class as leading world emerging economies like Brazil and Turkey makes Nigeria, a good destination for foreign direct investment. Democracy has been good for Nigeria. Multinational companies that abandoned Nigeria in the days of military rule have come back. Others that were on the ground, that practically kept their investment at a minimum to prepare to divest on the long run, have upscaled their investments. What is interesting about this is that leading firms in the same industry are upscaling their investments at the same time creating a level of intra-industry or intra-category competition on a scale that has never been seen. We see this especially in industries like food and beverages, breweries and the telecommunications.
On the other hand, we see competition pressures driven up by the forces of deregulation and re-regulation. Monopoly powers which protected the in efficiencies of incumbent players are breaking down as we have seen in telecommunications, and we will see in other utility industries. Deregulation in financial services is leading to the convergence of playing fields of insurance and traditional banking that has been hitherto separated. And re-regulation as a result of the Soludo Solution in financial services has created new competitive situation of well resourced industry armies, consolidated firms with consolidated arsenals pointing towards each other. The marketing communications industry and the larger marketing profession has been one of the beneficiaries of this new competitive situation. The collective ad industry is estimated to have gone up by more than 250% over the last five years.
Digital technology which we call digitalization has also been a key driver of the new competitive pressure. It is creating substitute products with new economics that is forcing down prices in industries. In telecommunications, we can see the now established presence of international calling card business using new internet technologies that have forced down international calling rates from as much as N120 five years ago to about N15 today. Digital technology is creating convergence in industries that we will traditional consider as very distant from each other. A payment services nexus is emerging between the financial services and telecommunications industries. The two industries can bring different assets in market power and competencies to compete or co-operate in the emerging nexus.
Our simple story as we have pointed out at different marketing fora is that “the combined forces of Democracy, Deregulation and Digitaization which we call 3D forces are fundamentally changing the structure of many industries with potential seismic effects”. This presents a new level of challenge to marketing practitioners. This challenge goes beyond simple brand marketing which would be sufficient in stable industries. The challenge calls for harnessing the best traditions of brand marketing but elevating it to a new strategic level.
The defining paradigm of this new competitive situation is the rise of the power of the customer to new levels across industries. The customer is the beneficiary of the new competitive situation. The customer now has got real and many choices. He has also become more sophisticated. He is more widely traveled compared to the past. He is exposed to international media through satellite television, movies and DVDs. He knows the standards of advance markets and demands that his products perform to the same standards. He understands the economics of his relationship with your business at an amazing level. He is also becoming organized along with his peers in associations to protect their interests. We are witnessing a new phenomenon of organized customer power, something that we are not used to, in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. The customer may no longer be much atomized. The organized association of customers supported by Customer rights advocacy movements will challenge traditional marketing practice in Nigeria.
How has the business community and the new generation of marketers approached this new competitive challenge? In many industries, players have largely responded in the same way. We are all running after the same customers, offering them the same things, in the same way. Players are essentially copying each other with the result that customers can no longer see differences in offerings and services among players. There is a growing commoditization of industries especially in the service sector, a situation where we all run after the same customers, with the same offerings, in the same way. Price has become the only point of difference, which in itself is not a sustainable difference as players drop prices easily to match each other. Price wars are now on the increase, disguised as lotteries and promotions across industries. Even the banks are now doing lotteries. Industry value and profitability are being destroyed as a result of businesses not being able to deliver relevant, unique and tangible differentiation to customers. The consequences for re-investment and growth are serious if businesses cannot make good returns on their investments. Public savings mobilized into the stock market at an un-precendented level in the last two years may be threatened and even destroyed. The worst situation for savings and investments in Nigeria is for the public to loose confidence in the capital market because businesses have failed to give them good economic returns on their investments. It will take many years to rebuild public confidence in the capital market.
Businesses needs to return to the fundamental essence of strategy which is to elect to serve unique customer groups in a unique way with unique offerings based on the firm’s unique capabilities and competencies. Marketing has to lead the way in making this happen. The new generation of marketers must raise the level of conversations in their business to a strategic level around this fundamental essence of strategy. New generation marketers must leverage their knowledge of markets and customers to influence their organization policy level and their boards. Traditional front-end marketing skills will not be sufficient. The knowledge of back end operations including people and technology issues will be critical to engage the business on how to build unique capabilities that will deliver unique offerings to elected markets. We must engage our business leaders and the boards of corporate organizations that operational excellence is not the same thing as strategy. Many organizations today are confusing the two. They think that just by running an efficient, operational excellent organization, they will win in the market place. However, efficiency in serving the wrong markets is just a good as inefficiency on the long run. Even when organizations serve the right markets efficiently and they do so in ways that do not deliver unique values and offerings to their customers, their efficiency will not be effective on their bottom line. They will only become efficient, perpetual price -cutters who destroy economic value and the wealth of their shareholders.
If the power of customers is on the ascendancy, businesses will also need to have more dialogue with their customers. We will need to engage them at rational and emotional levels. Involving customers in products and service design could be a tool to building strong competitive edge. We will need to change our interaction with customers from mere transactions to relationships. Leading players in financial services have keyed into this and are seeing the effects on their bottom lines. Traditional marketing is product and transaction driven. New marketing is service and relationship driven. The emerging consumerism, organized customer-power and customer-rights movements provide one of the best opportunities in our history for businesses to differentiate themselves. Businesses can tap into the rising customer power phenomenon to differentiate themselves as “Customer Champions”. The customer-champion position is one of the best positions to own in any industry especially those witnessing unleashing of new competitive forces. The true merger of interests of the customer and the customer-champion firm will be such that the emerging customer right movements and advocacy groups will champion the interest of the customer-champion firm. When customers are the advocates of a firm, the market leadership of that firm is inevitable.
In conclusion, our simple story is that in the larger public interest, we need to de-commoditize our industries. We need to fight the commoditization tendency that could kill many businesses and destroy economic value. We need to raise a new slogan in the business community “Be Different or Die, Be Different or Die, Be Different or Die”. It is the task of this new generation such that when our own chronicle is written, we would not have failed the challenges of our time.
This is my epistle. Thank you for listening.
Olu Akanmu can be reached on olu.akanmu@yahoo.com
The authors that we celebrate today have painted the past of marketing in a memoir; I want to paint the present of marketing in my presentation. The book is a great one, it has been well reviewed. It is a chronicle of the exploits of Kings of Marketing on the shores of Nigeria. It is a chronicle, for the learning of the new generation of marketers, to build on the standards of the past, to celebrate the successes of our elders and to learn from their challenges. It is to this new generation, these new practitioners of marketing who are writing their own history that I wish to direct my epistle. I will be speaking to you today on the contemporary challenges of marketing in Nigeria.
Competition across industries today has never been more intense in our land. The Nigeria economy has become more liberalized and markets are opening up. The international credit rating of the Nigeria economy by Fitch and Standard and Poor, that puts us in the same class as leading world emerging economies like Brazil and Turkey makes Nigeria, a good destination for foreign direct investment. Democracy has been good for Nigeria. Multinational companies that abandoned Nigeria in the days of military rule have come back. Others that were on the ground, that practically kept their investment at a minimum to prepare to divest on the long run, have upscaled their investments. What is interesting about this is that leading firms in the same industry are upscaling their investments at the same time creating a level of intra-industry or intra-category competition on a scale that has never been seen. We see this especially in industries like food and beverages, breweries and the telecommunications.
On the other hand, we see competition pressures driven up by the forces of deregulation and re-regulation. Monopoly powers which protected the in efficiencies of incumbent players are breaking down as we have seen in telecommunications, and we will see in other utility industries. Deregulation in financial services is leading to the convergence of playing fields of insurance and traditional banking that has been hitherto separated. And re-regulation as a result of the Soludo Solution in financial services has created new competitive situation of well resourced industry armies, consolidated firms with consolidated arsenals pointing towards each other. The marketing communications industry and the larger marketing profession has been one of the beneficiaries of this new competitive situation. The collective ad industry is estimated to have gone up by more than 250% over the last five years.
Digital technology which we call digitalization has also been a key driver of the new competitive pressure. It is creating substitute products with new economics that is forcing down prices in industries. In telecommunications, we can see the now established presence of international calling card business using new internet technologies that have forced down international calling rates from as much as N120 five years ago to about N15 today. Digital technology is creating convergence in industries that we will traditional consider as very distant from each other. A payment services nexus is emerging between the financial services and telecommunications industries. The two industries can bring different assets in market power and competencies to compete or co-operate in the emerging nexus.
Our simple story as we have pointed out at different marketing fora is that “the combined forces of Democracy, Deregulation and Digitaization which we call 3D forces are fundamentally changing the structure of many industries with potential seismic effects”. This presents a new level of challenge to marketing practitioners. This challenge goes beyond simple brand marketing which would be sufficient in stable industries. The challenge calls for harnessing the best traditions of brand marketing but elevating it to a new strategic level.
The defining paradigm of this new competitive situation is the rise of the power of the customer to new levels across industries. The customer is the beneficiary of the new competitive situation. The customer now has got real and many choices. He has also become more sophisticated. He is more widely traveled compared to the past. He is exposed to international media through satellite television, movies and DVDs. He knows the standards of advance markets and demands that his products perform to the same standards. He understands the economics of his relationship with your business at an amazing level. He is also becoming organized along with his peers in associations to protect their interests. We are witnessing a new phenomenon of organized customer power, something that we are not used to, in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. The customer may no longer be much atomized. The organized association of customers supported by Customer rights advocacy movements will challenge traditional marketing practice in Nigeria.
How has the business community and the new generation of marketers approached this new competitive challenge? In many industries, players have largely responded in the same way. We are all running after the same customers, offering them the same things, in the same way. Players are essentially copying each other with the result that customers can no longer see differences in offerings and services among players. There is a growing commoditization of industries especially in the service sector, a situation where we all run after the same customers, with the same offerings, in the same way. Price has become the only point of difference, which in itself is not a sustainable difference as players drop prices easily to match each other. Price wars are now on the increase, disguised as lotteries and promotions across industries. Even the banks are now doing lotteries. Industry value and profitability are being destroyed as a result of businesses not being able to deliver relevant, unique and tangible differentiation to customers. The consequences for re-investment and growth are serious if businesses cannot make good returns on their investments. Public savings mobilized into the stock market at an un-precendented level in the last two years may be threatened and even destroyed. The worst situation for savings and investments in Nigeria is for the public to loose confidence in the capital market because businesses have failed to give them good economic returns on their investments. It will take many years to rebuild public confidence in the capital market.
Businesses needs to return to the fundamental essence of strategy which is to elect to serve unique customer groups in a unique way with unique offerings based on the firm’s unique capabilities and competencies. Marketing has to lead the way in making this happen. The new generation of marketers must raise the level of conversations in their business to a strategic level around this fundamental essence of strategy. New generation marketers must leverage their knowledge of markets and customers to influence their organization policy level and their boards. Traditional front-end marketing skills will not be sufficient. The knowledge of back end operations including people and technology issues will be critical to engage the business on how to build unique capabilities that will deliver unique offerings to elected markets. We must engage our business leaders and the boards of corporate organizations that operational excellence is not the same thing as strategy. Many organizations today are confusing the two. They think that just by running an efficient, operational excellent organization, they will win in the market place. However, efficiency in serving the wrong markets is just a good as inefficiency on the long run. Even when organizations serve the right markets efficiently and they do so in ways that do not deliver unique values and offerings to their customers, their efficiency will not be effective on their bottom line. They will only become efficient, perpetual price -cutters who destroy economic value and the wealth of their shareholders.
If the power of customers is on the ascendancy, businesses will also need to have more dialogue with their customers. We will need to engage them at rational and emotional levels. Involving customers in products and service design could be a tool to building strong competitive edge. We will need to change our interaction with customers from mere transactions to relationships. Leading players in financial services have keyed into this and are seeing the effects on their bottom lines. Traditional marketing is product and transaction driven. New marketing is service and relationship driven. The emerging consumerism, organized customer-power and customer-rights movements provide one of the best opportunities in our history for businesses to differentiate themselves. Businesses can tap into the rising customer power phenomenon to differentiate themselves as “Customer Champions”. The customer-champion position is one of the best positions to own in any industry especially those witnessing unleashing of new competitive forces. The true merger of interests of the customer and the customer-champion firm will be such that the emerging customer right movements and advocacy groups will champion the interest of the customer-champion firm. When customers are the advocates of a firm, the market leadership of that firm is inevitable.
In conclusion, our simple story is that in the larger public interest, we need to de-commoditize our industries. We need to fight the commoditization tendency that could kill many businesses and destroy economic value. We need to raise a new slogan in the business community “Be Different or Die, Be Different or Die, Be Different or Die”. It is the task of this new generation such that when our own chronicle is written, we would not have failed the challenges of our time.
This is my epistle. Thank you for listening.
Olu Akanmu can be reached on olu.akanmu@yahoo.com
What is a good business idea?
By Olu Akanmu
Ideas come like a flash in our mind. We see opportunities, we ponder on it and wonder whether the opportunity is real. We are essentially going through the process of asking this key fundamental question of entrepreneurship—“What is a good business idea?”. Essentially, a good business idea (in its most ideal form), it’s a business where there is good return on investment with positive cash flows. The elements of a good business idea are as follows.
There is a true need for a service in the market, and that need is not being fulfilled by anyone. Sometimes, it is not a clear as the above. Existing supplier/ players could currently fulfill a service-need in the market. A good business idea in this context could be a new way to fulfill that need either in better way, more efficiently or at a lower cost to the customer. A more efficient way could imply the customer will get more value through the new business idea for the same amount of investment she would have made under the current situation.
A good business idea as described above is not a wishful thinking. It is grounded in reality. An organization or individual who can fulfill a market need in a unique way must have unique capability. In essence, the organization must have something that is not common, something that others within the boundary of that market do not have. This uniqueness must be such that it can be translated to deliver a unique value to the customer by enabling the customer to fulfill an unfulfilled need or fulfill an existing need better, more efficiently or at a lower cost.
A good business idea must be executable, at least by the conceiver of the idea. Sometimes, there are significant hurdles to cross to execute an idea. This may include finance, government regulation, technology etc. In many instances, the true value of the idea can only be realized when a significant hurdle is overcome. Such hurdles tend to protect the existing incumbent players, protect their inefficiencies and poor customer-value delivery. Overcoming such hurdles may need a lot of courage, doggedness and commitment. Such attributes are the stuff great entrepreneurs are made of.
It is important to recognize that sometimes a good idea may not be executable by the original conceiver because he lacks the capability to do so. This might be due to issues like capital, knowledge or technology. Good business ideas should not be killed because one cannot execute it. The opportunities to partner with others who could bring complementary capabilities to execute the idea in a fair commercial arrangement should be explored.
A good business idea also tends to be such that only the conceiver, when it is brought to live, can do it for a long time. Essentially, if I can fulfill an unfulfilled need in the market, and everyone can quickly copy it, then the idea will loose its uniqueness and ultimately its potential to deliver unique value to the customer. A good business idea must therefore have the potential to be protected, or I must be able to build barriers to entry around the business. This protection may include capital (I can raise money than anyone), technology (I have a unique technology that cannot be copied), legal (intellectual property, copyrights, contracts, regulations), knowledge (I know what others do not know, or what it will take them a long time to know), relationships (I have critical relationships that others cannot build). It is important to recognize the limits of legal protection in places like Nigeria where the institutions that can help enforce property rights are weak and under-developed.
A good business idea must also be expressible in a simple statement to a defined customer. It is amazing how many businesses fail this test. This sometimes called unique value proposition. It is essentially, a statement like “ I am X. You want something like this. I can do it for you in better (more for your spend) or do it for you cheaper (so that you spend far less). And this is why… I am the only one who can do it for you like this at least around here”. Communication is key bedrock of marketing. If it cannot be easily communicated or understood by the customer, it is probably not a good business idea.
The strength of a good business idea must also be measurable. In its simplest form, it must be measurable in the context of how many people could potentially buy the product, the likely cost of producing the service or idea, the price ranges that people will be willing to pay, the revenue stream and profits. Essentially, a good business idea must be expressible in financial terms or in a financial statement. This exercise must however be done without a delusion. It must be grounded in reality of your capability, competition, and customer purchase power and value appreciation.
As simple as the above sounds, they are not easy tests for business ideas to pass. Hence, a good business idea is not common. If it were so, success will be common. This is however not to say that one should be discouraged. Good business idea tends to come out of an iteration, trials, perfection and improvement of other ideas. The chances of getting a good business idea also tend to increase the more options, one could conceive and articulate. Hence, don’t stop trying. The next idea you have may just be the winning one.
Olu Akanmu, July 2006 .
Ideas come like a flash in our mind. We see opportunities, we ponder on it and wonder whether the opportunity is real. We are essentially going through the process of asking this key fundamental question of entrepreneurship—“What is a good business idea?”. Essentially, a good business idea (in its most ideal form), it’s a business where there is good return on investment with positive cash flows. The elements of a good business idea are as follows.
There is a true need for a service in the market, and that need is not being fulfilled by anyone. Sometimes, it is not a clear as the above. Existing supplier/ players could currently fulfill a service-need in the market. A good business idea in this context could be a new way to fulfill that need either in better way, more efficiently or at a lower cost to the customer. A more efficient way could imply the customer will get more value through the new business idea for the same amount of investment she would have made under the current situation.
A good business idea as described above is not a wishful thinking. It is grounded in reality. An organization or individual who can fulfill a market need in a unique way must have unique capability. In essence, the organization must have something that is not common, something that others within the boundary of that market do not have. This uniqueness must be such that it can be translated to deliver a unique value to the customer by enabling the customer to fulfill an unfulfilled need or fulfill an existing need better, more efficiently or at a lower cost.
A good business idea must be executable, at least by the conceiver of the idea. Sometimes, there are significant hurdles to cross to execute an idea. This may include finance, government regulation, technology etc. In many instances, the true value of the idea can only be realized when a significant hurdle is overcome. Such hurdles tend to protect the existing incumbent players, protect their inefficiencies and poor customer-value delivery. Overcoming such hurdles may need a lot of courage, doggedness and commitment. Such attributes are the stuff great entrepreneurs are made of.
It is important to recognize that sometimes a good idea may not be executable by the original conceiver because he lacks the capability to do so. This might be due to issues like capital, knowledge or technology. Good business ideas should not be killed because one cannot execute it. The opportunities to partner with others who could bring complementary capabilities to execute the idea in a fair commercial arrangement should be explored.
A good business idea also tends to be such that only the conceiver, when it is brought to live, can do it for a long time. Essentially, if I can fulfill an unfulfilled need in the market, and everyone can quickly copy it, then the idea will loose its uniqueness and ultimately its potential to deliver unique value to the customer. A good business idea must therefore have the potential to be protected, or I must be able to build barriers to entry around the business. This protection may include capital (I can raise money than anyone), technology (I have a unique technology that cannot be copied), legal (intellectual property, copyrights, contracts, regulations), knowledge (I know what others do not know, or what it will take them a long time to know), relationships (I have critical relationships that others cannot build). It is important to recognize the limits of legal protection in places like Nigeria where the institutions that can help enforce property rights are weak and under-developed.
A good business idea must also be expressible in a simple statement to a defined customer. It is amazing how many businesses fail this test. This sometimes called unique value proposition. It is essentially, a statement like “ I am X. You want something like this. I can do it for you in better (more for your spend) or do it for you cheaper (so that you spend far less). And this is why… I am the only one who can do it for you like this at least around here”. Communication is key bedrock of marketing. If it cannot be easily communicated or understood by the customer, it is probably not a good business idea.
The strength of a good business idea must also be measurable. In its simplest form, it must be measurable in the context of how many people could potentially buy the product, the likely cost of producing the service or idea, the price ranges that people will be willing to pay, the revenue stream and profits. Essentially, a good business idea must be expressible in financial terms or in a financial statement. This exercise must however be done without a delusion. It must be grounded in reality of your capability, competition, and customer purchase power and value appreciation.
As simple as the above sounds, they are not easy tests for business ideas to pass. Hence, a good business idea is not common. If it were so, success will be common. This is however not to say that one should be discouraged. Good business idea tends to come out of an iteration, trials, perfection and improvement of other ideas. The chances of getting a good business idea also tend to increase the more options, one could conceive and articulate. Hence, don’t stop trying. The next idea you have may just be the winning one.
Olu Akanmu, July 2006 .
Some Lessons for Nigeria CEOs
By Olu Akanmu
This article was written in March, 2005 and was published by leading Nigeria newspapers. It remains relevant today for leaders of business in Nigeria and elsewhere.
On the 7th of February, this year, highly celebrated CEO of Hewlett Packard (HP), Carly Fiorina was asked to step down by her board. While the event in the US, looks remote for us in Nigeria, it holds important lessons for corporate leadership and management anywhere in the world. As we enter a new period of mega-corporations and mega banks in Nigeria, where public savings are being mobilized as investments on a scale without precedents, it is imperative that corporations run well, grow shareholder wealth and continue to win public trust. Boards and CEOs can learn important lessons from the six-year leadership of Carly Fiorina at HP.
Carly Fiorina had been invited to revamp a non-performing HP stifled by a consensus management culture, which stifled the efficient execution of business programs. This culture also sidelined performance management and created a bureaucratic monster. She had arrived from Lucent with excellent track records. Five and a half years after her appointment, HP’s stocks were worth less than its value in 1999. The human cost of achieving the non-performance has been very high. Tens of thousands of HP's employee had been laid off. Organization morale declined to its lowest level. The best of HP’s engineers and management had to find pastures in other places. There are four important management lessons to learn from the saga.
One is that operational excellence is not strategy. Carly was a cost-cutter, very excellent in slashing corporate fats. She slashed more than $3 billion dollars cost in the merger with Compaq. This did not however increased HP and Compaq shareholder value on a sustained basis. Costs can only be cut for a limited time. A program of how markets can be uniquely exploited, better than rival firms, must replace it. It is important to be operational excellent. A business should however be operationally excellent in the right things. Those “right things” are the elements of strategy where an organization elects to compete and win in certain markets because it can exploit those markets uniquely based on its unique capabilities better than its rivals. It is different from competing like others, a me-too, or worst still, a commodity where there are many players serving the same markets in the same way. HP’s leadership did not deploy a clear strategy of how it could compete uniquely in the markets it elected to serve. It tried to be like IBM in the enterprise solution market without the depth of the relationships and enterprise experience of IBM. The direct low-cost efficient model of Dell could not be matched by HP in the personal computer business, a function of its successful legacy system in its printing business which supports the use of indirect channels. Analysts have said that HP tried to be everything to everyone and in the end could not stake a clear business position on which it could build lasting advantage.
When corporate leadership fails to define a clear strategy, they can become obsessively focused on cutting cost largely out of desperation. They turn cost-cutting into a mission. They forget that it cannot sustain corporate performance in the long term especially if the business in not competing in its right markets based on it unique capabilities. And if a business does not have a unique capability that can help it to exploit certain markets better than its rivals, it is the task of corporate leadership to focus on building that unique capability in the shortest possible time. Cost-cutting focus could have been justified in HP in the first two years. It could however not be justified as the mission of the business over the five years that saw thousands of HP workers being retrenched. The board of HP allowed the leadership of HP to visit its sins of lack of clear competitive strategy on HP workers by making them the victim of its (board) failure to manage its CEO. This is the second lesson of the HP saga. That corporate board must dispassionately manage their CEOs around the issues of strategy and its execution. Executive leadership must define its corporate strategy based on which markets it has elected to participate with a clear view of how it will exploit those markets better than its rivals. This should be tied to a clear program of “how” this will be done with measurable performance milestones at corporate and operational levels. It is not clear if the HP’s board has managed Carly Fiorina this way. The HP board shares in the responsibility of the destruction of wealth of HP’s shareholders.
Learning from the above, corporate boards in Nigeria must become more than association of mega-rich shareholders. The shareholders must combine their mega-financial interests with an ability to critique and engage its executive management on deeper issues of strategy and implementation. It they don’t, they could be easily bamboozled (at their peril) by smooth talking executives who are masters of persuasive rhetoric, good politicians but with very little to show in results.
The third lesson of the HP saga is that change management must be people focused. Carly Fiorina had great and noble intentions. She introduced a performance management system without the critical element of inspiring the commitment of HP employees. Performance management is not a simple mechanical issue of decreeing targets, rewards and bonuses. The modern organization of today is more sophisticated than the days of Frederick Taylor, who postulated that organizations could be largely run like a machine. Machine organizations could look like they are performing for a short while. In the long run, the complexities of the internal and external environment, which demands employee initiatives beyond the exercise of command and control, create “zombie” organizations where the collective brain of the organization is narrowed to that of the CEO alone. And the CEO cannot be wiser than a rival firm where thousands of smart employees are engaged in a collective dialogue on how to out-compete its rivals.
How do leaders inspire the commitment of employees to the change agenda? They must engage them in a constructive dialogue using facts and figures of corporate performance. Leaders should demand from employees what it has first demanded of itself. They must be accessible and have the right level of emotional intelligence for tough dialogues, know when leadership must show it listens and when to be decisive and firm. Leadership with the right level of emotional intelligence recognizes that it is people that get things done. Leaders must build that emotional connection with employees, celebrate and praise, create organization rituals that reinforce the desired culture and participate actively in these rituals. Yet, they must correct issues without getting personal or demeaning the self-esteem of individuals around them. It is doubtful if Carly Fiorina managed this way. To say the least, she was hated by HP staff. A leader does not need to be loved. She must however not be hated. Hated leaders cannot inspire the organizations of today, where employees have to use their heart and soul to out-compete rivals on a long sustainable performance.
The fourth lesson of the HP saga is best illustrated by the African proverb that says that if one puts too many firewood in the cooking fire at the same time, the fire will not burn well. HP has been described as the broadest technology firm in modern history competing in virtually everything from PCs to enterprise solutions, software, printers and consumer electronics. One of the critiques of HP under Fiorina’s leadership is that she took on too many things at the same time. A cardinal rule of successful strategy execution is understanding the capacity to execute and limiting programs to that execution capacity. HP might have been stretched too thinly over many markets, competing with giants like Dell, IBM, Canon and Sony. The array of management programs needed to win and compete in these markets could largely overwhelm any corporate leadership.
Corporate leaders in Nigeria can learn a lot from this HP saga. We need businesses in Nigeria that are efficient in doing things well but are also pursuing the right strategy by doing the right things. The tendency to be all things to everyone in the emerging financial service industry will be very high. There will be too many resources flying around that the industry managers may not be conventionally used to. Yet, this can on the medium to long term destroy shareholder value and public trust in capital markets. Leaders of the emerging financial service industry must therefore define clear non me-too competitive strategy that will lead to sustained wealth creation. The emerging firms must appoint strong corporate boards that can engage their executive teams on deep strategy dialogues and hold them accountable for its implementation. Leadership with strong people orientation, in which performance management is a sub-set will largely outperform its rivals. And of course, execution of strategy will be critical, that leadership capacity to make performance happen and win in the market place.
Olu Akanmu
March 2005
This article was written in March, 2005 and was published by leading Nigeria newspapers. It remains relevant today for leaders of business in Nigeria and elsewhere.
On the 7th of February, this year, highly celebrated CEO of Hewlett Packard (HP), Carly Fiorina was asked to step down by her board. While the event in the US, looks remote for us in Nigeria, it holds important lessons for corporate leadership and management anywhere in the world. As we enter a new period of mega-corporations and mega banks in Nigeria, where public savings are being mobilized as investments on a scale without precedents, it is imperative that corporations run well, grow shareholder wealth and continue to win public trust. Boards and CEOs can learn important lessons from the six-year leadership of Carly Fiorina at HP.
Carly Fiorina had been invited to revamp a non-performing HP stifled by a consensus management culture, which stifled the efficient execution of business programs. This culture also sidelined performance management and created a bureaucratic monster. She had arrived from Lucent with excellent track records. Five and a half years after her appointment, HP’s stocks were worth less than its value in 1999. The human cost of achieving the non-performance has been very high. Tens of thousands of HP's employee had been laid off. Organization morale declined to its lowest level. The best of HP’s engineers and management had to find pastures in other places. There are four important management lessons to learn from the saga.
One is that operational excellence is not strategy. Carly was a cost-cutter, very excellent in slashing corporate fats. She slashed more than $3 billion dollars cost in the merger with Compaq. This did not however increased HP and Compaq shareholder value on a sustained basis. Costs can only be cut for a limited time. A program of how markets can be uniquely exploited, better than rival firms, must replace it. It is important to be operational excellent. A business should however be operationally excellent in the right things. Those “right things” are the elements of strategy where an organization elects to compete and win in certain markets because it can exploit those markets uniquely based on its unique capabilities better than its rivals. It is different from competing like others, a me-too, or worst still, a commodity where there are many players serving the same markets in the same way. HP’s leadership did not deploy a clear strategy of how it could compete uniquely in the markets it elected to serve. It tried to be like IBM in the enterprise solution market without the depth of the relationships and enterprise experience of IBM. The direct low-cost efficient model of Dell could not be matched by HP in the personal computer business, a function of its successful legacy system in its printing business which supports the use of indirect channels. Analysts have said that HP tried to be everything to everyone and in the end could not stake a clear business position on which it could build lasting advantage.
When corporate leadership fails to define a clear strategy, they can become obsessively focused on cutting cost largely out of desperation. They turn cost-cutting into a mission. They forget that it cannot sustain corporate performance in the long term especially if the business in not competing in its right markets based on it unique capabilities. And if a business does not have a unique capability that can help it to exploit certain markets better than its rivals, it is the task of corporate leadership to focus on building that unique capability in the shortest possible time. Cost-cutting focus could have been justified in HP in the first two years. It could however not be justified as the mission of the business over the five years that saw thousands of HP workers being retrenched. The board of HP allowed the leadership of HP to visit its sins of lack of clear competitive strategy on HP workers by making them the victim of its (board) failure to manage its CEO. This is the second lesson of the HP saga. That corporate board must dispassionately manage their CEOs around the issues of strategy and its execution. Executive leadership must define its corporate strategy based on which markets it has elected to participate with a clear view of how it will exploit those markets better than its rivals. This should be tied to a clear program of “how” this will be done with measurable performance milestones at corporate and operational levels. It is not clear if the HP’s board has managed Carly Fiorina this way. The HP board shares in the responsibility of the destruction of wealth of HP’s shareholders.
Learning from the above, corporate boards in Nigeria must become more than association of mega-rich shareholders. The shareholders must combine their mega-financial interests with an ability to critique and engage its executive management on deeper issues of strategy and implementation. It they don’t, they could be easily bamboozled (at their peril) by smooth talking executives who are masters of persuasive rhetoric, good politicians but with very little to show in results.
The third lesson of the HP saga is that change management must be people focused. Carly Fiorina had great and noble intentions. She introduced a performance management system without the critical element of inspiring the commitment of HP employees. Performance management is not a simple mechanical issue of decreeing targets, rewards and bonuses. The modern organization of today is more sophisticated than the days of Frederick Taylor, who postulated that organizations could be largely run like a machine. Machine organizations could look like they are performing for a short while. In the long run, the complexities of the internal and external environment, which demands employee initiatives beyond the exercise of command and control, create “zombie” organizations where the collective brain of the organization is narrowed to that of the CEO alone. And the CEO cannot be wiser than a rival firm where thousands of smart employees are engaged in a collective dialogue on how to out-compete its rivals.
How do leaders inspire the commitment of employees to the change agenda? They must engage them in a constructive dialogue using facts and figures of corporate performance. Leaders should demand from employees what it has first demanded of itself. They must be accessible and have the right level of emotional intelligence for tough dialogues, know when leadership must show it listens and when to be decisive and firm. Leadership with the right level of emotional intelligence recognizes that it is people that get things done. Leaders must build that emotional connection with employees, celebrate and praise, create organization rituals that reinforce the desired culture and participate actively in these rituals. Yet, they must correct issues without getting personal or demeaning the self-esteem of individuals around them. It is doubtful if Carly Fiorina managed this way. To say the least, she was hated by HP staff. A leader does not need to be loved. She must however not be hated. Hated leaders cannot inspire the organizations of today, where employees have to use their heart and soul to out-compete rivals on a long sustainable performance.
The fourth lesson of the HP saga is best illustrated by the African proverb that says that if one puts too many firewood in the cooking fire at the same time, the fire will not burn well. HP has been described as the broadest technology firm in modern history competing in virtually everything from PCs to enterprise solutions, software, printers and consumer electronics. One of the critiques of HP under Fiorina’s leadership is that she took on too many things at the same time. A cardinal rule of successful strategy execution is understanding the capacity to execute and limiting programs to that execution capacity. HP might have been stretched too thinly over many markets, competing with giants like Dell, IBM, Canon and Sony. The array of management programs needed to win and compete in these markets could largely overwhelm any corporate leadership.
Corporate leaders in Nigeria can learn a lot from this HP saga. We need businesses in Nigeria that are efficient in doing things well but are also pursuing the right strategy by doing the right things. The tendency to be all things to everyone in the emerging financial service industry will be very high. There will be too many resources flying around that the industry managers may not be conventionally used to. Yet, this can on the medium to long term destroy shareholder value and public trust in capital markets. Leaders of the emerging financial service industry must therefore define clear non me-too competitive strategy that will lead to sustained wealth creation. The emerging firms must appoint strong corporate boards that can engage their executive teams on deep strategy dialogues and hold them accountable for its implementation. Leadership with strong people orientation, in which performance management is a sub-set will largely outperform its rivals. And of course, execution of strategy will be critical, that leadership capacity to make performance happen and win in the market place.
Olu Akanmu
March 2005
The Challenges Of Marketing in Nigeria
By Olu Akanmu (June 2004)
The practice of marketing in Nigeria is entering a new era of challenges that has no precedent in the history of the current generation. The objective context of the marketing programs of business organizations with regards to the environment of such program is witnessing fundamental shifts necessitating a rethink of the way we do marketing. It implies a return to the basics of successful traditions of marketing practice while raising the marketing game to new and higher level of strategy. The combined forces of Democracy, Deregulation and Digitalization which I call the (3D forces) on the business environment is changing the economic structure of many industries with potential seismic effects. Marketing as one of the leading functions of business cannot insulate itself from these potential seismic effects. It must adapt (and where possible take advantage) of the 3D forces to fulfill its mission in business organizations to win in the market place.
Democracy
Five years of democracy and political stability has led to increased level of “Business Confidence” in Nigeria. Business Confidence is a macroeconomic index that measures the level of confidence of people to invest and spend based on their sentiment and perception of the “conducive-ness” of the business environment. Foreign Direct Investment (FDIs) is increasing led by the huge investments in the telecom sector. The manufacturing has also witnessed new FDIs through Nigeria Breweries, Guinness and companies like Nestle. Empirical evidence suggests that national capital stashed away in savings in foreign countries are beginning to return to Nigeria in the form of private investments. The capital market is growing rapidly occasioned by the new level of business confidence and the increased savings level of the middle class.
The economy grew by more than 10% last year, a feat unprecedented in the last decade. There is now a more structured approach to macroeconomic management. While the gains of economic growth and the spiral effects of FDIs might not have yet trickled to the bottom of the economic ladder, empirical evidence suggest clearly that the middle class is growing with increasing prosperity. A dipstick index of the increasing economic prosperity of the middle class is the number of new cars on the road especially on Lagos 3rd mainland bridge every morning.
We are witnessing the entry of new firms into Nigeria competing in existing industries and sometimes opening up new industry niches and categories. The entry mode of these firms rage from licensing, agency relationships and sometimes full business entry. Some firms that divested in the days of military rule are returning. In the manufacturing sector, some of the old multinationals have who divested, returned to significantly increase equity in their local subsidiary and take their full control. Intra and inter industry category competition is on the increase.
A higher level of marketing and business excellence is now expected of the Nigeria managers. During the days of military rule, the local subsidiaries of international firms were virtually abandoned by their international headquarters as they scaled down on their investments. The quality of human capital and professional excellence declined in many sectors. Marketing standards and practice fell in Nigeria from the lofty levels of the past. This trend is now reversing as we witness new investments in development of marketing talents in many industries. International exposure and secondments of marketing talents is on the increase. There is an increasing change of leadership and generational shifts with returnee secondments, Nigeria repatriates or expatriate Marketing Directors who are expected to bring world-class practice to their companies. The driver of this trend is recognition by the international firms that they virtually increased the level of their investments in Nigeria, at the same time and at nearly the same scale as their rivals. This implies a higher level of competition that demands a higher level of marketing excellence if the firms are to achieve their expected returns on investment.
Deregulation
The momentum of deregulation that started towards the end of military rule has picked up significantly under the democratic dispensation. We are witnessing fundamental changes in the economic structure of old regulated industries in telecommunications, energy and financial services. Monopoly power is falling with its attendant inefficiencies. Regulatory barriers, which protected old monopolies, are crumbling. New entrepreneurial players are entering the old protected industries fundamentally changing the rule of the industry game. In the financial services sector, deregulation and regulatory reforms is leading to the convergence of the old banking and insurance industries with a new dispensation of universal banking. Insurance industry practitioners will have to rethink the rule of success under the new emerging convergence. It is interesting that the biggest forays into the converged service fields between insurance and banking is being led by the new generation banks steeled in the art of taking advantage of deregulation, learnt in their own industries.
Deregulation has increased the bargaining power of customers as new entrepreneurial players enter old protected industries. Customers are having many choices of services to fulfill the same need. Deregulation is leading to a new level of competition with the customer as the ultimate beneficiary. We are witnessing a new phenomenon of organized customer power, something that we are not used to, in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. There will be many manifestations of organized customer power. It may take the forms of unions or outright industry customer associations. The customer may no longer be very atomized. The organized association of customers supported by Customer rights advocacy movements will change traditional marketing thoughts and practice especially in newly deregulated industries.
Digitalization
Digitalization or digital technology’s most profound effect will be in the convergence of industries and categories. Industry practitioners are aware of the emerging convergence and overplay of telecommunications, financial service and entertainment industries. This global trend may have a unique manifestation in Nigeria occasioned by our peculiar social development and infrastructure challenges. The understanding of the unique manifestation of this convergence can provide real advantages for industry players. Competitive radar screen will have to be widened to include non-traditional competitors who will use the power of technology to enter other industries.
Network industries are emerging requiring the co-operation of many specialized players to deliver service, especially in telecommunications and financial service industry. Network industries turn the rule of traditional marketing on its head. Traditional marketing is competitive and sometimes adversarial. It has little space for co-operative strategies, which are critical in network industries. The emerging Automated Teller Machine (ATM) Services of Banks is a good example. The value of a network is a function of its size. The more ATM places that a bankcard could be used, the better its value. Yet no single bank can open branches with ATMs in virtually every corner where the ATM service could be required. Banks therefore need to ensure the inter-connect of their individual ATM cards. In essence, this ensures that all ATM machines and locations are available to all bankcards irrespective of the bank that issued the card. This increases the value of ATMs to customers.
In order to achieve the above, banks must co-operate to interconnect their systems while competing to acquire customers for ATM card issuance. Essentially, the banks must compete and co-operate, a new strategy trend that has been described as “Co-opetition”. Co-operative skills in marketing are perhaps more difficult to develop compared to traditional adversarial competitive marketing. System interconnection implies the need for agreements on standards, the trading-off of individual interest in legacy systems for the collective bigger wins and the control of institutional egos.
Co-opetition strategies are also emerging in the insurance and banking industries in the new dispensation of universal banking. Co-opetiton strategies requires recognizing the limits of ones ability, clear organizational objective and goals, understanding the goal and interest of other players, searching for win-win solutions that grows the cake and makes it bigger to divide.
Players in the energy industries going through seismic shifting deregulation will also need to master co-opetition strategies. The breadth of competencies required to deliver service makes it imperative that they must co-operate and compete. The power sector will be particularly interesting in the coming years. The dynamics of competition, co-operation, regulation and reforms will test traditional strategy thoughts.
Strategic Business Positioning
The new intense nature of competition occasioned by the 3D forces makes it imperative for businesses to define for themselves clear industry positioning strategies. There is always a strong tendency on the part of firms in many industries to compete in the same way, target the same customers with the same offerings, deliver them in the same way and ultimately price their service in the same way. This “commoditization” tendency ultimately leads to price war, driving prices down along with industry profitability. Commoditization tendency also implies that firms make no strategic choice of customer segments to serve (and which ones they will not) based on their unique differentiating assets. The financial service industry provides a good example of many firms that compete in the same way by chasing the same type of customers with the same type offerings. Yet, there are other firms in the same industry who are pursuing clear differentiating and positioning strategies, clear choice of market segments to serve while developing supportive organizational capability and competency programs. On the long term, most of the firms with commodity competitive strategies are likely to be consolidated and swallowed by players with scale economy advantages. Many of the small commodity players will run out of competitive gas, as they witness declining profit and ultimately destroy economic value.
It is imperative that new entrants in deregulated industries differentiate themselves from incumbents with large assets who are likely to play a pricing game. Incumbents are also likely to use their market power to dictate the competition rules. New entrants must however enter the industry with a view to change such rules, as the existing industry competition rules will always sustain the leadership of incumbents. If new entrants must change the rules of competition to their advantage, they must build new types of differentiating assets that allows them to stake strong claims to unique market positions and serve their choice of customer segments uniquely.
Incumbents on their part must recognize that industry rules are changing and reform to adapt to them. This is however easier said than done. There is usually an initial “stickiness” of the economic power of incumbents even when the objective conditions of their market power are rapidly dissolving. This tends to make incumbents arrogant and blind to the new reality of the rise of customer power and new competition. This reinforces the tendency of incumbent players to compete as if industry conditions will remain static. If incumbents are to maintain their leadership in deregulated markets, they must lead their industry in changing the rules of competition, reform their competitive strategies, sometimes cannibalize their existing products by new customer-oriented services. The rule is “attack yourself before someone else does”, divide the cake but keep them in the house. If the history of deregulated industries all over the world is anything to go by, this is difficult for incumbents to do.
Is The Rise Of Customer Power A Threat To Business?
The defining paradigm of the new dispensation of the convergence of the 3D forces is the rise of customer power in many industries. Organizations that are not customer-centric may perceive the new ascendancy of customer power as a threat. Yet, the emerging consumerism, organized customer-power and customer-rights movements provide one of the best opportunities in our history for businesses to differentiate themselves. Businesses can tap into the rising customer power phenomenon to differentiate themselves as “Customer Champions”. The customer-champion position is one of the best positions to own in any industry especially those witnessing unleashing of new competitive forces. Many organizations shall however claim to be customer champions. The true customer champions are however those organizations that truly serve and champion customer interest. They are those who make the right business trade-offs in favour of the customer. Customers will truly know the organizations that champion their interest. They will easily discern between reality and advertising claim.
The true merger of interests of the customer and the customer-champion firm will be such that the emerging customer right movements and advocacy groups will champion the interest of the customer-champion firm. When customers are the advocates of a firm, the market leadership of that firm is inevitable.
Customer Relationship Management
Many service businesses, as a result of the new ascendancy of customer-power, shall adopt some form of Customer Relationship Management Program (CRM). CRM shall become very fashionable pushed by hard selling IT and management consultants. Yet, this shall not constitute competitive edge for many firms as such CRM programs become industry generics. The experience of IT development and adoption in the service industry is showing that technology on its own may be necessary for competitive edge. It is however not a sufficient condition. A business must define for itself clear differentiation and positioning strategy aligned to its choice of customer segments and how it wants to serve them uniquely. CRM program is effective only if it is a tool of this well-defined business strategy.
CRM program is a business asset. It is however the total and unique configuration of all assets and resources of a firm, aligned to a defined differentiation strategy that truly builds sustainable competitive advantage. These assets and resources include people, knowledge and organization culture, finance, systems and processes among others. Unique organization culture aligned to serve the customer in unique and better ways could be far more critical than generic CRM programs. Organizations will not become customer-centric just because they have CRM programs. Building a true “Customer-Champion” culture supported by good CRM program can be a most powerful strategy under the new dispensation of the ascendancy of customer power.
Managing Inter-Category Competition
Inter-category competition has increased. Competition is no longer between soft drinks, or between beer brands. There is a new type of competition between soft drinks, beer, cigarettes and re-charge cards. Share of pocket analysis is now as critical as share of market analysis. This type of inter-category competition is not what we are traditionally used to in Nigeria marketing practice. Competitive radar screen and marketing planning must today factor-in developments in other industries and categories.
If brands are to survive this new type of inter-category competition, they must build strong emotional market positions that are bigger than their rational categories. In essence, brand-marketing programs must address questions such as “ How do we make soft drinks bigger than refreshment?” How do we make beer bigger than “highness?” Brands must find ways to tap into higher timeless emotional and self-expressive human values to build the necessary resilience against share-of-pocket competition from other categories.
Media Clutter
The convergence of the 3D forces with new investments and increased competition implies that there are now more advertisers than we have previously known. Telecommunications have taken over from soft drinks as the leading category in share of media voice. Demand for media space is accelerating. The demand is however not backed by a commensurate growth in media supply. The economics of supply and demand of media space is therefore leading to accelerating media-space inflation. Media clutter is now very high. It is becoming increasingly difficult for brand messages to penetrate the competitive noise and clutter of media. Media compliance levels are falling especially on radio. Every one wants the radio drive-time belt with limited media space. Most of such scheduled radio ads are aired after 9am when the target audience delivery target can no longer be achieved.
Breaking through media clutter with brand messages require a return to the basics of advertising message strategy. Advertising messages must tell the consumer very clearly what is in it for him that he cannot get somewhere else. It must be driven by an alignment of what is unique about the brand and relevant consumer insight or motivation for choice within the category. Simplicity is the hallmark of great creative strategy. The customer does not have to do complicated and abstract thinking to understand advertising messages. Brand messages must be delivered with clear consumer benefits in simple and easy comprehensible creative executions.
A higher level of excellence in media planning is required. Media buying must become more scientific, based on audience delivery metrics and effectiveness. It is not just about buying cheap. It is also about buying into the right critical audience belts. Scientific media planning technologies are now available in Nigeria. Its quality however needs to be seriously improved to the standards of the first world. This requires an industry-wide co-operation of all stakeholders including the media organizations.
As media gets saturated and cluttered, strategically relevant sponsorships can provide real edge in brand communications. Sponsorships is however not a charity. It must be such that generates positive associations for the brand and support its intended market position.
Experiential Marketing
The fast food category provides a very good case study of the need to move from the marketing of tangibles to experience under the new dispensation. The combination of increasing middle class prosperity and changing work-lifestyles is driving the growth of the fast food category. Foreign brands are entering the market to wrestle market share from local entrenched players. Product parity is increasing. Brand and service differentiation can no longer be achieved at the rational level of snacks; chicken and pizza as there are growing number of players offering such products. Brand differentiation has to move in this category from products to the “experience of eating”.
Fast food category brands must explore opportunities to differentiate on the basis of emotional experience of family, love, friendship, success, fun and many more. The eating ambience must deliver unique emotional experience beyond the products they sell. The experience of eating must be transferred to the branded food packs when taken-away. When the meal is taken outside the restaurant, in an office or home, the food pack must make the customer feel his location as a virtual extension of the unique eating experience of the restaurant.
The paradigm shift in the coffee category marketing internationally provides important lessons for fast food industry players. Brands like Starbucks have emerged from no-where with an experiential service proposition that overturned competition rules in coffee marketing. Coffee has become bigger than the rational benefit of “mental alertness”. Coffee today means friendship. Customers express the same emotion when they say “let’s do coffee in the afternoon” as when they say “lets have beer together in the evening”.
The re-nascent big screen cinema industry also provides opportunity for experiential brand differentiation. The motivation to go to the movies is beyond the movie itself. It is the experience of friendship, of being together, and the experience of family. The big screen movie experience is a bonding opportunity between friends and the rekindling of family feelings. The emerging national big screen cinema brands must understand this on time, and build a truly differentiated and sustainable experiential brand. It is inevitable in the near to medium term, that foreign brands will enter this category to exploit the increasing prosperity of the middle class. These foreign brands will be able to source better content and achieve rational differentiation, dissolving quickly the brand equity of the national brands. The national brands as we have seen in the fast food category, must therefore begin at their inception to connect higher emotional values of family, fun and friendship to differentiate. The earlier they start, the stronger their potential to own and lock those emotional segments from the inevitable entrant international brands.
All service businesses should explore experiential marketing differentiation opportunities especially in categories witnessing increasing product parity.
Conclusion
The convergence of the 3D forces of democracy, deregulation and digitalization is leading to profound changes in economic structure of industries. The convergence is creating a new type of competition that our generation is not used to. The new type of competition stretches some of the traditional principles of competitive marketing. The defining paradigm of this new competition is the rise of organized customer power. This organized customer power implies the need for a new type of dialogue between the firm and the customer, compared to the little or no dialogue of the past.
The new ascendancy of customer power provides new industry leadership opportunities for true customer champions. Businesses that align their interest with that of the customer will find a most un-usual partnership in the organized customer advocacy groups who will also champion the firm’s interest. The new dispensation provides opportunity for a new type of partnership between the customer-champion firm and the customer. This partnership will provide strong competitive edge that will eventually lead to industry leadership for the true customer-champions.
Post script
Since the lecture was delivered in June, this year, there has been major regulatory development in financial services industry. The banking sector is going through major consolidation driven by the N25 billion minimum capitalization rules. The financial services industry especially banking may be entering a new period in which resource advantage, as a basis of competition would be seriously eroded. The landscape could be filled with several financial institutions with good capital (resource) to play. Resource advantage gaps could be significantly narrowed. Building market-based competitive advantage based superior service offering driven by superior market-insights would be critical in the coming future. The learning capability of the organization, how it processes that learning to develop superior market insight that informs its service offerings may be the most critical competitive advantage in the emerging future in financial services.
Olu Akanmu, delivered this lecture at 1ST Brandwagon bi-monthly lecture series. June, 2004. Olu Akanmu can be reached on olu.akanmu@yahoo.com
The practice of marketing in Nigeria is entering a new era of challenges that has no precedent in the history of the current generation. The objective context of the marketing programs of business organizations with regards to the environment of such program is witnessing fundamental shifts necessitating a rethink of the way we do marketing. It implies a return to the basics of successful traditions of marketing practice while raising the marketing game to new and higher level of strategy. The combined forces of Democracy, Deregulation and Digitalization which I call the (3D forces) on the business environment is changing the economic structure of many industries with potential seismic effects. Marketing as one of the leading functions of business cannot insulate itself from these potential seismic effects. It must adapt (and where possible take advantage) of the 3D forces to fulfill its mission in business organizations to win in the market place.
Democracy
Five years of democracy and political stability has led to increased level of “Business Confidence” in Nigeria. Business Confidence is a macroeconomic index that measures the level of confidence of people to invest and spend based on their sentiment and perception of the “conducive-ness” of the business environment. Foreign Direct Investment (FDIs) is increasing led by the huge investments in the telecom sector. The manufacturing has also witnessed new FDIs through Nigeria Breweries, Guinness and companies like Nestle. Empirical evidence suggests that national capital stashed away in savings in foreign countries are beginning to return to Nigeria in the form of private investments. The capital market is growing rapidly occasioned by the new level of business confidence and the increased savings level of the middle class.
The economy grew by more than 10% last year, a feat unprecedented in the last decade. There is now a more structured approach to macroeconomic management. While the gains of economic growth and the spiral effects of FDIs might not have yet trickled to the bottom of the economic ladder, empirical evidence suggest clearly that the middle class is growing with increasing prosperity. A dipstick index of the increasing economic prosperity of the middle class is the number of new cars on the road especially on Lagos 3rd mainland bridge every morning.
We are witnessing the entry of new firms into Nigeria competing in existing industries and sometimes opening up new industry niches and categories. The entry mode of these firms rage from licensing, agency relationships and sometimes full business entry. Some firms that divested in the days of military rule are returning. In the manufacturing sector, some of the old multinationals have who divested, returned to significantly increase equity in their local subsidiary and take their full control. Intra and inter industry category competition is on the increase.
A higher level of marketing and business excellence is now expected of the Nigeria managers. During the days of military rule, the local subsidiaries of international firms were virtually abandoned by their international headquarters as they scaled down on their investments. The quality of human capital and professional excellence declined in many sectors. Marketing standards and practice fell in Nigeria from the lofty levels of the past. This trend is now reversing as we witness new investments in development of marketing talents in many industries. International exposure and secondments of marketing talents is on the increase. There is an increasing change of leadership and generational shifts with returnee secondments, Nigeria repatriates or expatriate Marketing Directors who are expected to bring world-class practice to their companies. The driver of this trend is recognition by the international firms that they virtually increased the level of their investments in Nigeria, at the same time and at nearly the same scale as their rivals. This implies a higher level of competition that demands a higher level of marketing excellence if the firms are to achieve their expected returns on investment.
Deregulation
The momentum of deregulation that started towards the end of military rule has picked up significantly under the democratic dispensation. We are witnessing fundamental changes in the economic structure of old regulated industries in telecommunications, energy and financial services. Monopoly power is falling with its attendant inefficiencies. Regulatory barriers, which protected old monopolies, are crumbling. New entrepreneurial players are entering the old protected industries fundamentally changing the rule of the industry game. In the financial services sector, deregulation and regulatory reforms is leading to the convergence of the old banking and insurance industries with a new dispensation of universal banking. Insurance industry practitioners will have to rethink the rule of success under the new emerging convergence. It is interesting that the biggest forays into the converged service fields between insurance and banking is being led by the new generation banks steeled in the art of taking advantage of deregulation, learnt in their own industries.
Deregulation has increased the bargaining power of customers as new entrepreneurial players enter old protected industries. Customers are having many choices of services to fulfill the same need. Deregulation is leading to a new level of competition with the customer as the ultimate beneficiary. We are witnessing a new phenomenon of organized customer power, something that we are not used to, in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. There will be many manifestations of organized customer power. It may take the forms of unions or outright industry customer associations. The customer may no longer be very atomized. The organized association of customers supported by Customer rights advocacy movements will change traditional marketing thoughts and practice especially in newly deregulated industries.
Digitalization
Digitalization or digital technology’s most profound effect will be in the convergence of industries and categories. Industry practitioners are aware of the emerging convergence and overplay of telecommunications, financial service and entertainment industries. This global trend may have a unique manifestation in Nigeria occasioned by our peculiar social development and infrastructure challenges. The understanding of the unique manifestation of this convergence can provide real advantages for industry players. Competitive radar screen will have to be widened to include non-traditional competitors who will use the power of technology to enter other industries.
Network industries are emerging requiring the co-operation of many specialized players to deliver service, especially in telecommunications and financial service industry. Network industries turn the rule of traditional marketing on its head. Traditional marketing is competitive and sometimes adversarial. It has little space for co-operative strategies, which are critical in network industries. The emerging Automated Teller Machine (ATM) Services of Banks is a good example. The value of a network is a function of its size. The more ATM places that a bankcard could be used, the better its value. Yet no single bank can open branches with ATMs in virtually every corner where the ATM service could be required. Banks therefore need to ensure the inter-connect of their individual ATM cards. In essence, this ensures that all ATM machines and locations are available to all bankcards irrespective of the bank that issued the card. This increases the value of ATMs to customers.
In order to achieve the above, banks must co-operate to interconnect their systems while competing to acquire customers for ATM card issuance. Essentially, the banks must compete and co-operate, a new strategy trend that has been described as “Co-opetition”. Co-operative skills in marketing are perhaps more difficult to develop compared to traditional adversarial competitive marketing. System interconnection implies the need for agreements on standards, the trading-off of individual interest in legacy systems for the collective bigger wins and the control of institutional egos.
Co-opetition strategies are also emerging in the insurance and banking industries in the new dispensation of universal banking. Co-opetiton strategies requires recognizing the limits of ones ability, clear organizational objective and goals, understanding the goal and interest of other players, searching for win-win solutions that grows the cake and makes it bigger to divide.
Players in the energy industries going through seismic shifting deregulation will also need to master co-opetition strategies. The breadth of competencies required to deliver service makes it imperative that they must co-operate and compete. The power sector will be particularly interesting in the coming years. The dynamics of competition, co-operation, regulation and reforms will test traditional strategy thoughts.
Strategic Business Positioning
The new intense nature of competition occasioned by the 3D forces makes it imperative for businesses to define for themselves clear industry positioning strategies. There is always a strong tendency on the part of firms in many industries to compete in the same way, target the same customers with the same offerings, deliver them in the same way and ultimately price their service in the same way. This “commoditization” tendency ultimately leads to price war, driving prices down along with industry profitability. Commoditization tendency also implies that firms make no strategic choice of customer segments to serve (and which ones they will not) based on their unique differentiating assets. The financial service industry provides a good example of many firms that compete in the same way by chasing the same type of customers with the same type offerings. Yet, there are other firms in the same industry who are pursuing clear differentiating and positioning strategies, clear choice of market segments to serve while developing supportive organizational capability and competency programs. On the long term, most of the firms with commodity competitive strategies are likely to be consolidated and swallowed by players with scale economy advantages. Many of the small commodity players will run out of competitive gas, as they witness declining profit and ultimately destroy economic value.
It is imperative that new entrants in deregulated industries differentiate themselves from incumbents with large assets who are likely to play a pricing game. Incumbents are also likely to use their market power to dictate the competition rules. New entrants must however enter the industry with a view to change such rules, as the existing industry competition rules will always sustain the leadership of incumbents. If new entrants must change the rules of competition to their advantage, they must build new types of differentiating assets that allows them to stake strong claims to unique market positions and serve their choice of customer segments uniquely.
Incumbents on their part must recognize that industry rules are changing and reform to adapt to them. This is however easier said than done. There is usually an initial “stickiness” of the economic power of incumbents even when the objective conditions of their market power are rapidly dissolving. This tends to make incumbents arrogant and blind to the new reality of the rise of customer power and new competition. This reinforces the tendency of incumbent players to compete as if industry conditions will remain static. If incumbents are to maintain their leadership in deregulated markets, they must lead their industry in changing the rules of competition, reform their competitive strategies, sometimes cannibalize their existing products by new customer-oriented services. The rule is “attack yourself before someone else does”, divide the cake but keep them in the house. If the history of deregulated industries all over the world is anything to go by, this is difficult for incumbents to do.
Is The Rise Of Customer Power A Threat To Business?
The defining paradigm of the new dispensation of the convergence of the 3D forces is the rise of customer power in many industries. Organizations that are not customer-centric may perceive the new ascendancy of customer power as a threat. Yet, the emerging consumerism, organized customer-power and customer-rights movements provide one of the best opportunities in our history for businesses to differentiate themselves. Businesses can tap into the rising customer power phenomenon to differentiate themselves as “Customer Champions”. The customer-champion position is one of the best positions to own in any industry especially those witnessing unleashing of new competitive forces. Many organizations shall however claim to be customer champions. The true customer champions are however those organizations that truly serve and champion customer interest. They are those who make the right business trade-offs in favour of the customer. Customers will truly know the organizations that champion their interest. They will easily discern between reality and advertising claim.
The true merger of interests of the customer and the customer-champion firm will be such that the emerging customer right movements and advocacy groups will champion the interest of the customer-champion firm. When customers are the advocates of a firm, the market leadership of that firm is inevitable.
Customer Relationship Management
Many service businesses, as a result of the new ascendancy of customer-power, shall adopt some form of Customer Relationship Management Program (CRM). CRM shall become very fashionable pushed by hard selling IT and management consultants. Yet, this shall not constitute competitive edge for many firms as such CRM programs become industry generics. The experience of IT development and adoption in the service industry is showing that technology on its own may be necessary for competitive edge. It is however not a sufficient condition. A business must define for itself clear differentiation and positioning strategy aligned to its choice of customer segments and how it wants to serve them uniquely. CRM program is effective only if it is a tool of this well-defined business strategy.
CRM program is a business asset. It is however the total and unique configuration of all assets and resources of a firm, aligned to a defined differentiation strategy that truly builds sustainable competitive advantage. These assets and resources include people, knowledge and organization culture, finance, systems and processes among others. Unique organization culture aligned to serve the customer in unique and better ways could be far more critical than generic CRM programs. Organizations will not become customer-centric just because they have CRM programs. Building a true “Customer-Champion” culture supported by good CRM program can be a most powerful strategy under the new dispensation of the ascendancy of customer power.
Managing Inter-Category Competition
Inter-category competition has increased. Competition is no longer between soft drinks, or between beer brands. There is a new type of competition between soft drinks, beer, cigarettes and re-charge cards. Share of pocket analysis is now as critical as share of market analysis. This type of inter-category competition is not what we are traditionally used to in Nigeria marketing practice. Competitive radar screen and marketing planning must today factor-in developments in other industries and categories.
If brands are to survive this new type of inter-category competition, they must build strong emotional market positions that are bigger than their rational categories. In essence, brand-marketing programs must address questions such as “ How do we make soft drinks bigger than refreshment?” How do we make beer bigger than “highness?” Brands must find ways to tap into higher timeless emotional and self-expressive human values to build the necessary resilience against share-of-pocket competition from other categories.
Media Clutter
The convergence of the 3D forces with new investments and increased competition implies that there are now more advertisers than we have previously known. Telecommunications have taken over from soft drinks as the leading category in share of media voice. Demand for media space is accelerating. The demand is however not backed by a commensurate growth in media supply. The economics of supply and demand of media space is therefore leading to accelerating media-space inflation. Media clutter is now very high. It is becoming increasingly difficult for brand messages to penetrate the competitive noise and clutter of media. Media compliance levels are falling especially on radio. Every one wants the radio drive-time belt with limited media space. Most of such scheduled radio ads are aired after 9am when the target audience delivery target can no longer be achieved.
Breaking through media clutter with brand messages require a return to the basics of advertising message strategy. Advertising messages must tell the consumer very clearly what is in it for him that he cannot get somewhere else. It must be driven by an alignment of what is unique about the brand and relevant consumer insight or motivation for choice within the category. Simplicity is the hallmark of great creative strategy. The customer does not have to do complicated and abstract thinking to understand advertising messages. Brand messages must be delivered with clear consumer benefits in simple and easy comprehensible creative executions.
A higher level of excellence in media planning is required. Media buying must become more scientific, based on audience delivery metrics and effectiveness. It is not just about buying cheap. It is also about buying into the right critical audience belts. Scientific media planning technologies are now available in Nigeria. Its quality however needs to be seriously improved to the standards of the first world. This requires an industry-wide co-operation of all stakeholders including the media organizations.
As media gets saturated and cluttered, strategically relevant sponsorships can provide real edge in brand communications. Sponsorships is however not a charity. It must be such that generates positive associations for the brand and support its intended market position.
Experiential Marketing
The fast food category provides a very good case study of the need to move from the marketing of tangibles to experience under the new dispensation. The combination of increasing middle class prosperity and changing work-lifestyles is driving the growth of the fast food category. Foreign brands are entering the market to wrestle market share from local entrenched players. Product parity is increasing. Brand and service differentiation can no longer be achieved at the rational level of snacks; chicken and pizza as there are growing number of players offering such products. Brand differentiation has to move in this category from products to the “experience of eating”.
Fast food category brands must explore opportunities to differentiate on the basis of emotional experience of family, love, friendship, success, fun and many more. The eating ambience must deliver unique emotional experience beyond the products they sell. The experience of eating must be transferred to the branded food packs when taken-away. When the meal is taken outside the restaurant, in an office or home, the food pack must make the customer feel his location as a virtual extension of the unique eating experience of the restaurant.
The paradigm shift in the coffee category marketing internationally provides important lessons for fast food industry players. Brands like Starbucks have emerged from no-where with an experiential service proposition that overturned competition rules in coffee marketing. Coffee has become bigger than the rational benefit of “mental alertness”. Coffee today means friendship. Customers express the same emotion when they say “let’s do coffee in the afternoon” as when they say “lets have beer together in the evening”.
The re-nascent big screen cinema industry also provides opportunity for experiential brand differentiation. The motivation to go to the movies is beyond the movie itself. It is the experience of friendship, of being together, and the experience of family. The big screen movie experience is a bonding opportunity between friends and the rekindling of family feelings. The emerging national big screen cinema brands must understand this on time, and build a truly differentiated and sustainable experiential brand. It is inevitable in the near to medium term, that foreign brands will enter this category to exploit the increasing prosperity of the middle class. These foreign brands will be able to source better content and achieve rational differentiation, dissolving quickly the brand equity of the national brands. The national brands as we have seen in the fast food category, must therefore begin at their inception to connect higher emotional values of family, fun and friendship to differentiate. The earlier they start, the stronger their potential to own and lock those emotional segments from the inevitable entrant international brands.
All service businesses should explore experiential marketing differentiation opportunities especially in categories witnessing increasing product parity.
Conclusion
The convergence of the 3D forces of democracy, deregulation and digitalization is leading to profound changes in economic structure of industries. The convergence is creating a new type of competition that our generation is not used to. The new type of competition stretches some of the traditional principles of competitive marketing. The defining paradigm of this new competition is the rise of organized customer power. This organized customer power implies the need for a new type of dialogue between the firm and the customer, compared to the little or no dialogue of the past.
The new ascendancy of customer power provides new industry leadership opportunities for true customer champions. Businesses that align their interest with that of the customer will find a most un-usual partnership in the organized customer advocacy groups who will also champion the firm’s interest. The new dispensation provides opportunity for a new type of partnership between the customer-champion firm and the customer. This partnership will provide strong competitive edge that will eventually lead to industry leadership for the true customer-champions.
Post script
Since the lecture was delivered in June, this year, there has been major regulatory development in financial services industry. The banking sector is going through major consolidation driven by the N25 billion minimum capitalization rules. The financial services industry especially banking may be entering a new period in which resource advantage, as a basis of competition would be seriously eroded. The landscape could be filled with several financial institutions with good capital (resource) to play. Resource advantage gaps could be significantly narrowed. Building market-based competitive advantage based superior service offering driven by superior market-insights would be critical in the coming future. The learning capability of the organization, how it processes that learning to develop superior market insight that informs its service offerings may be the most critical competitive advantage in the emerging future in financial services.
Olu Akanmu, delivered this lecture at 1ST Brandwagon bi-monthly lecture series. June, 2004. Olu Akanmu can be reached on olu.akanmu@yahoo.com
Thursday, November 20, 2008
Focused versus Diversification Strategies in Emerging Markets
By Olu Akanmu
Which one creates better shareholder value: Conglomerate diversified companies or focused corporations? Strategy scholars have converged that focused companies tend to create better shareholder value than diversified conglomerates. Two Harvard Professors, Tarun Khanna and Krishna Palepu in their article titled " Why Focus Strategies May Be Wrong for Emerging Markets" in the Harvard Business Review, July-August 1997 posited however that there is an emerging market context and exemption to the "focused companies create better shareholder value theory". The first commentary below is my critique of the Khanna and Palepu's article also published in the Harvard Business Review, November-December, 1997, page 178. The second article that follows titled "Critique of the Korean Chaebol Business Model in Nigeira" was inspired by developments in the Nigeria market in 2006. It pursues the same theme as the HBR 1997 Commentary, that even if Korean and Indian Conglomerates were successful in the 1960s to 1980s, it cannot be exactly replicated in Nigeria as a success and development formula becasue the global economic context has fundamentally changed. Please, read on.
Article 1:
Olu Akanmu, Strategies Focusing on Emerging Markets; Harvard Business Review, November-December, 1997, page 178
Khanna and Palepu’s article is an interesting contribution to business strategy in emerging markets. There is however a real danger that advocating diversification in emerging markets might be taken out of context. Many of the conglomerates discussed in the article owe their success to government protectionism, which insulated the companies from international competition (at the time). Those conglomerates have been able to maximize profit not because they were efficient but because their customers did not have access to goods from abroad that offered better value for money.
Today, as national barriers to trade are broken down, the basis for successes of these highly diversified conglomerates in emerging markets can only be short-lived. The licensing and partnership agreements between these conglomerates and foreign companies are a transitional step towards the full scale entry of the foreign companies into emerging markets. Even if the conglomerates acquire technology from such agreements, their national markets are probably too small to offer the economies of scale they will need to compete with companies from abroad.
Conglomerates in emerging markets should therefore move abroad to exploit the competencies they have successfully developed in their core business. While doing so, they will need to re-structure their portfolios to eliminate businesses unable to sustain long-term competitive advantage against new entrants from abroad. That will also help them raise the cash they’ll need to accelerate their entry into foreign markets through acquisitions of fully owned subsidiaries.
That is the trend in South Africa where, for example, the highly diversified conglomerate Anglo American Corporation divested certain businesses to focus on its core mining business while actively pursing related opportunities abroad. Gencor also restructured its business and later divided into two separate companies, Gencor and Billiton, who stock will be sold not in South Africa but on the London Stock Exchange.
Conglomerates in emerging markets should work actively to promote ethical business practices, build local managerial capabilities, and lobby their governments to establish the regulatory and supportive institutions that the conglomerates have thus far been providing themselves. A most dramatic expression of this in South Africa, was the acceptance by the Chief Executive of the (then) diversified South African Breweries (SAB) to head the national police force and bring his managerial know-how to bear on strengthening the crime prevention system.
Rather than celebrate the achievements of the past, the conglomerates in emerging markets should look forward and restructure to create as sustained competitive advantage.
Article 2:
Critique of the Korean Chaebol Business Model in Nigeria
by Olu Akanmu (January, 31, 2006)
Transcorp is a public subject. It was midwifed by the Nigeria state while being a private institution. It has very privileged access to government. Its reason-for-being is noble. It is a timely empowerment vehicle for Nigeria businessmen and women in their own country. National competitiveness in the global economy has to be supported by a private sector that has the capacity to create sustained economic wealth for the Nigeria people. Size is a competitive factor even in national markets where local players have to compete with players from abroad. A Nigeria mega-corporation is therefore an idea whose time has come.
Transcorp seeks to replicate the economic model of the Korean chaebols which are also known as business conglomerates. It intends to play in fields as diverse as hotels, oil and gas, power, information technology, industrial park and agro-allied businesses. If Transcorp will succeed on its mission however, it is important that it recognises that the global context of the evolution of the chaebol business model has changed in the last decade. The global economy in the 1960s when the chaebol phenomenon took-off was far less liberalized and integrated than today. National protectionist barriers at the time insulated local players from international competition. Markets were far less efficient in many emerging economies. These emerging economies were quite backward and sometimes primitive characterized by the absence or weakness of market institutions and intermediaries that ensures the efficient allocation of factor resources like capital and labour. Local consumers were also un-sophisticated in their taste and preferences due to little exposure to goods and services from abroad.
The emergence of business conglomerates pursuing diversification strategies in unrelated businesses, in the emerging economies in the 1960s to 1980s were largely as a result of extreme market imperfections. Policy distortions, entrepreneurial scarcity, extreme information asymmetries in markets, absence of specialized intermediaries in capital, labour and product markets that enable markets to function efficiently were the characters of these countries. Business conglomerates attempted to fill these institutional voids by creating internal parallel markets in their organisations that substituted for well-functioning markets for capital, managerial talents and products. In doing so, they also naturally exploited theses voids and market asymmetries to create diverse businesses. They move capital and managerial talents around their diverse unrelated businesses and sell products and services among their subsidiaries. Artificial institutions cannot however substitute for well functioning markets. The internal markets of these conglomerates in themselves were also inefficient. Such markets were characterized by high internal transfer prices, high transaction costs, lack of transparencies and poor accounting practices. In the last ten years, as market institutions in emerging economies got stronger, and economic policies got more liberalized, businesses that pursue more focused strategies and take advantage of the strengthening market institutions rather than their own artificial internal markets have performed far better than the conglomerates or chaebols. This pattern has been repeated across many emerging markets in South Korea, India, Chile and South Africa.
The South Korean chaebols took advantage of every opportunity without regard to economic synergies among their businesses. Over time, they found it difficult to compete with more focused national and international players who have built deeper competencies in specific industries. Daewoo and Ssangyong for example, could not compete with focused international players in automobiles. The over-stretched nature of Daewoo eventually led to its bankruptcy. Samsung on the hand fared better because of its semblance of focus, earlier than its peers on the electronic industry. Other Korean chaebols have had to restructure since the 1990s to become more focused in related industries where they enjoy economic synergies and have built core-competencies. Also in India, as a result of a similar context, companies like the Tata group have had to grapple with the challenge of wealth creation. While Tata’s information technology business has performed poorly, focused Indian players like Infosys, the Wipro Group and Satyam have returned strong business performance. Infosys and the Wipro Group have even become strong international players in information technology. Ranbaxy also became a strong trans-national pharmaceutical/ chemical powerhouse by pursuing focused strategies based on its core-competencies. And in South Africa, Anglo-America had to unbundle its huge empire which used to transcend mining, breweries, financial services, media and consumer goods to become more focused on its core business.
The chaebols with the active protection of the Korean state, using highly debt -leveraged balance sheets, were encouraged to expand arbitrarily into industries as diverse as shipping, automobiles, electronic and steel. It did not matter in the 1970s and 1980s whether those corporations were efficiently using resources to create wealth in the diverse fields where they play. Their markets were protected. The chaebols enjoyed special favours from government and had access to foreign loans through special vehicles channelled or guaranteed by the Korean government. With such resources, the chaebols could purchase foreign technology and exploit the comparative advantage of South Korea in labour costs to play strongly in the export markets. Hyundai for example started its automobile business with engines developed by the Mitsubishi Corporation in Japan. The capital appetite of the chaebols could however not be supported by the low level of savings in South Korea as typical of many emerging market economies. Foreign loans had to fill the wide gap between the local savings and the huge investment rate fuelled by the chaebols. Koreans debts began to mount such that with the emerging markets economic crises of the 1990s, South Korea economy was badly exposed. The weakeness of the ‘Jack of all Trade’ business model of the chaebols became clearly manifest as many of them could not repay their debts. If they have stopped creating wealth due to an outdated business model, how could they have paid their creditors? The chaebols and their huge debts through their over-leveraged balanced sheets nearly brought down the Korean economy. Transcorp’s corporate strategy must therefore recognise the new global context of a liberalized economic world that does not provide hiding places for sub-optimal resource utilization among emerging economy players. To win, even in the emerging markets, you have to be the best at what you do.
Like the chaebols, Transcorp may also have privileged access to commercial loans. The cross-membership of its board with that of some leading financial institutions suggests so. The close relationship of the Korean chaebols, the government and the financial institutions created a situation of overinvestment and credit expansion without the typical discretion that should have been exercised by the lending institutions. The consequences for Korean economy were serious. Bad loan portfolio and poor asset quality spiralled in the banking sector. What are the implications of the cross membership of the board of Transcorp and some of the leading financial institutions to which Transcorp may turn to borrow funds? Would those financial institutions some of which are publicly-owned exercise rational economic judgements on Transcorp’s loan applications? These questions will have important structural implications for the Nigeria economy as Transcorp grows bigger in the future.
While the Transcorp idea will always be laudable, government must recognise that other Nigeria mega-corporations are emerging in natural ways in the oil, energy, and telecommunications industries. Government must pay attention to these emerging potential mega-companies as much as it pays to Transcorp. It must provide incentives to encourage their competitiveness without granting them unfair privileges. National companies that will travel far outside our shores are those who have learnt to compete well with international players at home. Whatever is good for Transcorp must be good for Ooando, Globacom, Zenon, or Zinox. One of the positive lessons from South Korea is that strong domestic rivalry is critical to developing strong competitiveness by local firms. Competitive advantage rarely comes out of easy life. It is a product of business pressure, market challenges and sometimes competitive adversity. National corporations, even when favoured collectively must be encouraged to compete strongly with themselves. Such competitive rivalry drives innovation and improvement within the firms and helps them to develop the muscle to play on the global stage. There was not one particularly favoured chaebol but as many that could muster the minimum capacity to play on the big stage were encouraged by the Korean government. There were at least three major chaebols competing in every strategic industry. Samsung, Daewoo and Goldstar competed in electronics while Hyundai, Daewoo, Ssangyong and Kia competed in automobiles. Of course, it will be critical to ensure that the emerging Transcorp and Transcorp-like organizations do not get too small as to loose the minimum size needed to play seriously in the highly capital-intensive strategic industries. A competition policy is long over-due that will provide a framework for managing the complex issues of firms’ size, national competitiveness, passages/ incentives to local firms and fair competition.
Our mega-corporation development model must also ensure that small and medium size businesses can co-exist with the mega players in a balanced business ecosystem. Big size can be a disadvantage in certain parts of an industry value chain. Where smaller players have economic advantages, they must be able to co-exist in co-opetition with the Trancorps. The South Korean chaebols had sometimes over-integrated across their industry value-chain into areas where smaller players could have created value more efficiently. Some of them have had to deploy predatory tactics to drive out the small and medium size players creating an unbalanced and sub-optimal business ecosystem. This has become an issue for South Korea in crossing its next threshold of international competitiveness. Strong supportive firms in the value chain and distribution channel which will complement and enhance the value creation of Transcorp and its peers should be therefore encouraged. Given the typical emerging economy scenario in Nigeria, where market intermediaries and institutions may evolve too slowly creating voids within the value chain, Transcorp may have to become a pro-active value-chain organizer as part of its competitive strategy.
Our national competitiveness program must include a program to strengthen Nigeria factor endowments which a Transcorp could exploit to build international competitive advantage. Simultaneously, with the development program of the cheabols, the South Korean state invested significantly in developing its human resource base especially in the areas of technical education. There has to be an organic framework to link the Transcorp program to a national capacity building program in science and technology. What role, for example will the National University Commission play in re-directing resources to the educational areas that will provide the skilled pipeline for strategic industries that will be the focus of Transcorp and its peers? Will there be need for industry specific technical institutions? How will these institutions be funded? What incentives such as tax breaks would be given to private firms to encourage training and development of Nigerians in priority areas targeted for national competitiveness? The Nigerian population is a strong factor endowment if we can convert our raw quantity to good quality. Our population provides a natural fit for utility industries such as telecommunications, power and water where scale is critical to competitiveness and organisation learning. Government policy in these industries should encourage national players who can compete with foreign firms at home and ultimately expand into Africa with the lessons learnt in the home market.
The Transcorp initiative is very commendable. Nigeria needs its own mega corporations, now. Strong and big business firms are critical to economic growth and national competitiveness. Our mega-corporation development strategy must however fit the current context of Nigeria of a global, more integrated and liberalized economy. Government should consider a complementary mega-corporation model of encouraging mergers or joint ventures of Nigerian firms in the same industries. Why should Ooando and Zenon not bid together for the Port Harcourt refinery and win, rather than both of them loose to a foreign firm? Can we replicate such models in other strategic industries? Transcorp itself, while it may objectively start as a business in diverse industries, it must as early as possible make long term choices of focus on few related industries. It may play wide in the short term by exploiting diverse market asymmetries using its political and social capital. It must however consider this as a short term strategy like buying stocks to sell as quickly at it appreciates, rather than keeping for a long term. It will need to build hard-core superior competencies in focused markets, if it will deliver on the dreams of its founding fathers.
Transcorp seeks to replicate the economic model of the Korean chaebols which are also known as business conglomerates. It intends to play in fields as diverse as hotels, oil and gas, power, information technology, industrial park and agro-allied businesses. If Transcorp will succeed on its mission however, it is important that it recognises that the global context of the evolution of the chaebol business model has changed in the last decade. The global economy in the 1960s when the chaebol phenomenon took-off was far less liberalized and integrated than today. National protectionist barriers at the time insulated local players from international competition. Markets were far less efficient in many emerging economies. These emerging economies were quite backward and sometimes primitive characterized by the absence or weakness of market institutions and intermediaries that ensures the efficient allocation of factor resources like capital and labour. Local consumers were also un-sophisticated in their taste and preferences due to little exposure to goods and services from abroad.
The emergence of business conglomerates pursuing diversification strategies in unrelated businesses, in the emerging economies in the 1960s to 1980s were largely as a result of extreme market imperfections. Policy distortions, entrepreneurial scarcity, extreme information asymmetries in markets, absence of specialized intermediaries in capital, labour and product markets that enable markets to function efficiently were the characters of these countries. Business conglomerates attempted to fill these institutional voids by creating internal parallel markets in their organisations that substituted for well-functioning markets for capital, managerial talents and products. In doing so, they also naturally exploited theses voids and market asymmetries to create diverse businesses. They move capital and managerial talents around their diverse unrelated businesses and sell products and services among their subsidiaries. Artificial institutions cannot however substitute for well functioning markets. The internal markets of these conglomerates in themselves were also inefficient. Such markets were characterized by high internal transfer prices, high transaction costs, lack of transparencies and poor accounting practices. In the last ten years, as market institutions in emerging economies got stronger, and economic policies got more liberalized, businesses that pursue more focused strategies and take advantage of the strengthening market institutions rather than their own artificial internal markets have performed far better than the conglomerates or chaebols. This pattern has been repeated across many emerging markets in South Korea, India, Chile and South Africa.
The South Korean chaebols took advantage of every opportunity without regard to economic synergies among their businesses. Over time, they found it difficult to compete with more focused national and international players who have built deeper competencies in specific industries. Daewoo and Ssangyong for example, could not compete with focused international players in automobiles. The over-stretched nature of Daewoo eventually led to its bankruptcy. Samsung on the hand fared better because of its semblance of focus, earlier than its peers on the electronic industry. Other Korean chaebols have had to restructure since the 1990s to become more focused in related industries where they enjoy economic synergies and have built core-competencies. Also in India, as a result of a similar context, companies like the Tata group have had to grapple with the challenge of wealth creation. While Tata’s information technology business has performed poorly, focused Indian players like Infosys, the Wipro Group and Satyam have returned strong business performance. Infosys and the Wipro Group have even become strong international players in information technology. Ranbaxy also became a strong trans-national pharmaceutical/ chemical powerhouse by pursuing focused strategies based on its core-competencies. And in South Africa, Anglo-America had to unbundle its huge empire which used to transcend mining, breweries, financial services, media and consumer goods to become more focused on its core business.
The chaebols with the active protection of the Korean state, using highly debt -leveraged balance sheets, were encouraged to expand arbitrarily into industries as diverse as shipping, automobiles, electronic and steel. It did not matter in the 1970s and 1980s whether those corporations were efficiently using resources to create wealth in the diverse fields where they play. Their markets were protected. The chaebols enjoyed special favours from government and had access to foreign loans through special vehicles channelled or guaranteed by the Korean government. With such resources, the chaebols could purchase foreign technology and exploit the comparative advantage of South Korea in labour costs to play strongly in the export markets. Hyundai for example started its automobile business with engines developed by the Mitsubishi Corporation in Japan. The capital appetite of the chaebols could however not be supported by the low level of savings in South Korea as typical of many emerging market economies. Foreign loans had to fill the wide gap between the local savings and the huge investment rate fuelled by the chaebols. Koreans debts began to mount such that with the emerging markets economic crises of the 1990s, South Korea economy was badly exposed. The weakeness of the ‘Jack of all Trade’ business model of the chaebols became clearly manifest as many of them could not repay their debts. If they have stopped creating wealth due to an outdated business model, how could they have paid their creditors? The chaebols and their huge debts through their over-leveraged balanced sheets nearly brought down the Korean economy. Transcorp’s corporate strategy must therefore recognise the new global context of a liberalized economic world that does not provide hiding places for sub-optimal resource utilization among emerging economy players. To win, even in the emerging markets, you have to be the best at what you do.
Like the chaebols, Transcorp may also have privileged access to commercial loans. The cross-membership of its board with that of some leading financial institutions suggests so. The close relationship of the Korean chaebols, the government and the financial institutions created a situation of overinvestment and credit expansion without the typical discretion that should have been exercised by the lending institutions. The consequences for Korean economy were serious. Bad loan portfolio and poor asset quality spiralled in the banking sector. What are the implications of the cross membership of the board of Transcorp and some of the leading financial institutions to which Transcorp may turn to borrow funds? Would those financial institutions some of which are publicly-owned exercise rational economic judgements on Transcorp’s loan applications? These questions will have important structural implications for the Nigeria economy as Transcorp grows bigger in the future.
While the Transcorp idea will always be laudable, government must recognise that other Nigeria mega-corporations are emerging in natural ways in the oil, energy, and telecommunications industries. Government must pay attention to these emerging potential mega-companies as much as it pays to Transcorp. It must provide incentives to encourage their competitiveness without granting them unfair privileges. National companies that will travel far outside our shores are those who have learnt to compete well with international players at home. Whatever is good for Transcorp must be good for Ooando, Globacom, Zenon, or Zinox. One of the positive lessons from South Korea is that strong domestic rivalry is critical to developing strong competitiveness by local firms. Competitive advantage rarely comes out of easy life. It is a product of business pressure, market challenges and sometimes competitive adversity. National corporations, even when favoured collectively must be encouraged to compete strongly with themselves. Such competitive rivalry drives innovation and improvement within the firms and helps them to develop the muscle to play on the global stage. There was not one particularly favoured chaebol but as many that could muster the minimum capacity to play on the big stage were encouraged by the Korean government. There were at least three major chaebols competing in every strategic industry. Samsung, Daewoo and Goldstar competed in electronics while Hyundai, Daewoo, Ssangyong and Kia competed in automobiles. Of course, it will be critical to ensure that the emerging Transcorp and Transcorp-like organizations do not get too small as to loose the minimum size needed to play seriously in the highly capital-intensive strategic industries. A competition policy is long over-due that will provide a framework for managing the complex issues of firms’ size, national competitiveness, passages/ incentives to local firms and fair competition.
Our mega-corporation development model must also ensure that small and medium size businesses can co-exist with the mega players in a balanced business ecosystem. Big size can be a disadvantage in certain parts of an industry value chain. Where smaller players have economic advantages, they must be able to co-exist in co-opetition with the Trancorps. The South Korean chaebols had sometimes over-integrated across their industry value-chain into areas where smaller players could have created value more efficiently. Some of them have had to deploy predatory tactics to drive out the small and medium size players creating an unbalanced and sub-optimal business ecosystem. This has become an issue for South Korea in crossing its next threshold of international competitiveness. Strong supportive firms in the value chain and distribution channel which will complement and enhance the value creation of Transcorp and its peers should be therefore encouraged. Given the typical emerging economy scenario in Nigeria, where market intermediaries and institutions may evolve too slowly creating voids within the value chain, Transcorp may have to become a pro-active value-chain organizer as part of its competitive strategy.
Our national competitiveness program must include a program to strengthen Nigeria factor endowments which a Transcorp could exploit to build international competitive advantage. Simultaneously, with the development program of the cheabols, the South Korean state invested significantly in developing its human resource base especially in the areas of technical education. There has to be an organic framework to link the Transcorp program to a national capacity building program in science and technology. What role, for example will the National University Commission play in re-directing resources to the educational areas that will provide the skilled pipeline for strategic industries that will be the focus of Transcorp and its peers? Will there be need for industry specific technical institutions? How will these institutions be funded? What incentives such as tax breaks would be given to private firms to encourage training and development of Nigerians in priority areas targeted for national competitiveness? The Nigerian population is a strong factor endowment if we can convert our raw quantity to good quality. Our population provides a natural fit for utility industries such as telecommunications, power and water where scale is critical to competitiveness and organisation learning. Government policy in these industries should encourage national players who can compete with foreign firms at home and ultimately expand into Africa with the lessons learnt in the home market.
The Transcorp initiative is very commendable. Nigeria needs its own mega corporations, now. Strong and big business firms are critical to economic growth and national competitiveness. Our mega-corporation development strategy must however fit the current context of Nigeria of a global, more integrated and liberalized economy. Government should consider a complementary mega-corporation model of encouraging mergers or joint ventures of Nigerian firms in the same industries. Why should Ooando and Zenon not bid together for the Port Harcourt refinery and win, rather than both of them loose to a foreign firm? Can we replicate such models in other strategic industries? Transcorp itself, while it may objectively start as a business in diverse industries, it must as early as possible make long term choices of focus on few related industries. It may play wide in the short term by exploiting diverse market asymmetries using its political and social capital. It must however consider this as a short term strategy like buying stocks to sell as quickly at it appreciates, rather than keeping for a long term. It will need to build hard-core superior competencies in focused markets, if it will deliver on the dreams of its founding fathers.
Economics of the Nigeria Media Industry
By Olu Akanmu
The media value chain can be simply described as starting from content creation and generation. Content creation may be news or entertainment such as drama, movies, sports and many others. Content is relayed on a vehicle, a pipe that conveys it to its desired audience. This pipe or vehicle is the television, the radio station or the newspaper which the layman describes as media. At the end of the value chain is the consumer of the content usually pre-determined audiences of various economic, lifestyle or demographic profiles which require the content for information and entertainment. The consumer of media content could either pay for what he consumes such as in satellite television and newspapers. The payment could also be done on her behalf by advertisers who pay for advertising spots inserted into the media to reach the consumer. Examples of this will include terrestrial television and radio in Nigeria whose income is largely derived from advertising revenue. However, there is a middle road characterized by the print medium (newspapers) whose income is a combination of daily title sales and advertising revenue. In this case, one can say that advertisers’ money is largely subsidizing the price of the titles of newspapers. Newspapers in Nigeria will probably cost three or four times their prices if not for the subsidy of advertisers. And how would terrestrial television have survived in Nigeria if not for the advertisers who keep them going, ensuring that they can bring to our cherished consumers the information and entertainment they so much desire. If therefore anyone has blamed advertisers in recent past for too-much advertising, it is important to remind them that without advertising, there would have been no news or entertainment on television, radio and the newspapers. The media would never have had the resources required to generate the content that our audiences require. We must however not forget the government in the value chain especially in the media it owns, where it plays the role of content generator and provider of subsidy through its subventions to its stations.
While data is not available, empirical evidence suggests that more than two-thirds of media revenue in Nigeria comes from advertising. The economics of demand and supply for advertising space in media such as television, radio and print is therefore critical to the health of the media and entertainment industry. The Nigeria economy is now on the part of enviable growth, thanks to the economic policies of the current government. Foreign direct investment is growing as multinationals invest anew to upgrade their operations and strengthen their firm’s competitiveness. The fact that all of the multinationals are doing this at the same time implies that intra-category competition has never been tougher than the present moment in the Nigeria market. At the same time, the forces of deregulation are breaking down monopoly power in sectors like telecommunications unleashing news waves of competition. These developments have accelerated the demand for advertising media-space. We only need to compare the number of advertising pages in newspapers today compared to five years ago. Sometimes, the newspapers even run-out of pages and they have to print extra pages as inserts just to carry more advertising. In essence, media space supply has not grown in tandem with demand. This large asymmetry in the supply and demand of media space has led to the highest level of media-inflation ever seen in Nigeria. Media inflation has been sometimes as high as 80% year on year in some high-demand media vehicles. Interventions on the demand side by advertisers through their associations and their buying agencies might have moderated the tide. This however has been difficult to control as the fundamental economics of the media industry keeps driving prices up until at least it reaches equilibrium prices. Some media owners have said that media in Nigeria has been under-priced relative to the prices overseas, that the industry is largely today witnessing an appropriate market correction. While we empathize with them, it is important to note that media prices are a reflection of the value of the consumer who consumes the content from media. The wealthier the consumer, the more revenue they can generate for advertisers and the more they will be willing to pay to reach them. The wealth of the Nigeria consumer cannot be compared to those of Europe and the America, hence media prices in Nigeria have remained relatively low compared to the first world.
Other issues that affect media prices in Nigeria include the un-even information flow in the media market between suppliers and buyers. This reflects the lack of sophistication of the media market where audience delivery information is not usually available to determine the true value of media properties. Suppliers have taken advantage of this by largely playing buyers (advertisers) against each other ensuring that they overbid the value of the property. The telecom industry has been particularly affected by this through the aggressive competition among the players and the view that the control of media is critical to market competitiveness. Media space competition does not know industry sectors. Telecoms players compete with soft drinks, breweries and other fast moving consumer goods. As telecom players drove up prices, other players have had to follow. This situation has presented a new challenge of marketing and media management efficiencies to advertisers as their budgets have not grown in tandem with media inflation.
The very low level of media segmentation in Nigeria also creates a situation where everyone (advertiser) on the demand side chases after the same media space. Most media stations have the same type of content for the same type of audiences and broadcast to these audiences at the same time across their stations. Hence, all advertisers have to place ads in the same stations, at the same time to reach their different audiences. For example, advertisers of products for children, youths, men and women place most of their ads around the drive time belt on the same radio stations. Such low level of segmentation creates over-priced media bands and under-priced media bands in low demand periods. This affects asset-utilization and creates market inefficiencies in the media industry. Media stations needs to become more segmented in their overall focus and programming. We are seeing the emergence of this trend in the evolution and success of new sports FM stations that have elected to focus on the male demographic audience of a particular lifestyle. In the print-medium, we have seen the emergence of youth focused magazines leveraging the hip-hop music genre to develop an enduring business. Are there other consumer demographics or lifestyle segments that other stations/medium could focus-on and create a market uniqueness, serve these audiences better than anyone and deliver them effectively and un-cluttered to advertisers at a premium? Such questions will help the media players build the competitive advantage necessary to win on sustainable basis.
Evidences suggest that media-inflation trend will continue in the short to medium term. The unified licensing regime in telecommunications will further drive-up demand for media space by telecom players. More players will come to the market, some with a war-chest funded by the new finances which they have raised. One of the telecom players recently raised a one –billion dollar financing, the effect of which we shall see in its market drive and demand for media space. Competition forces in the financial service sector, as a result of bank consolidation will also generate new demand for media space as many banks seek opportunity to strengthen their consumer franchise. In markets like South Africa, the financial service sector is one of the biggest advertising spenders. The Standard Bank of South Africa dominates the sponsorship of cricket while the English Premier League is sponsored by the Barclays Bank. Such trends from the financial service sector are eventually going to happen on the Nigeria soil.
We are yet to see an earth-shaking development on the supply side of the media industry. We are yet to see the entry of new players in television or radio on a scale that can increase supply, give broader choices to audiences and advertisers and impact on the economics of the media. New print-titles especially in magazines are springing up, largely a copy of themselves, targeting the same audiences with the same type of content. Such titles have therefore not made fundamental differences. The outdoor medium is also getting saturated as new roads are not being built. Every supplier has had to find space on the current roads leading to sometimes ugly media clutter on our skylines. For outdoors in particular, this is good news for outdoor medium owners. Outdoor media inflation especially in the un-conventional spaces like wall-drapes have sky-rocketed as advertisers outbid themselves for the limited number of spaces available.
A critical character of the television and radio sectors of the media industry in Nigeria is its fragmented nature. There are about eighty terrestrial television stations and ninety radio stations in Nigeria. South Africa, a bigger economy than Nigeria has only four terrestrial television stations. Most of the television and radio stations in Nigeria are not economically viable even with subventions from those who are government owned. Most of them are too small to deliver the minimum critical mass of audience that will make them attractive to advertisers on a sustained basis. This is apart from the huge transaction costs and market inefficiencies of buying media in such a fragmented industry. They also lack the resources to generate or buy good content to attract audiences. And they cannot get those resources without advertising. They are therefore locked in a vicious cycle of economic quagmire. Some level of industry consolidation may be inevitable in the Nigeria electronic media sector. We see emerging trends in this direction with the evolution of partnerships and program networks among different stations. The need for stronger market efficiencies would however drive industry consolidation in the medium term.
How can we make the media industry and market more efficient? Markets are efficient when information on goods and services flow freely among buyers and sellers. Such information helps to determine the true value of goods and links the right buyers to the right sellers while ensuring fair economic prices. It is critical that buyers and sellers in the Nigeria media industry work together to improve the quality of audience-rating information used to determine the true value of media properties and spaces. Some newspapers could do far better if their media-space prices reflect the true market-value of the audience they deliver rather than the standard industry association rates. By so doing, they will become more attractive to advertisers who would then be able to spread their media-spend across more newspaper houses. The fact that media spend is concentrated in four newspaper houses in Nigeria implies the need for a new pricing regime in the newspaper industry. We need a collective industry effort to increase the sophistication, gathering, accuracy, robustness, recency and dissemination of audience delivery and rating information. Pending the eventual consolidation of the small media players, we will need to encourage media networks to reduce transaction costs. The media industry does not need a regulatory intervention such as the Soludo solution. Market forces are likely to be sufficient to force the necessary consolidation. The regulator however has a role to play through suasion and encouragement of consolidation among media players. We must also strengthen contract enforcement in the industry. If the media market will be efficient, we must change from using the law of the jungle of “might is right” to the rule of law. Media contracts must be executed by media owners in its true spirit, carried at the time designated, and in the right form. The rights of sponsors of media programs as prescribed by law must be respected. The ambushing, in whatever form of sponsored properties without the consent of the sponsors must stop. All players, big and small must respect the law and not abuse their market power. Buyers of media spaces must also honour their contracts by paying the media houses as at when due. The Nigeria media has all the potentials to be a robust and strong industry. It only requires the collective efforts of all industry players working together to create an economic value chain that is truly efficient.
Olu Akanmu
October 2006
The media value chain can be simply described as starting from content creation and generation. Content creation may be news or entertainment such as drama, movies, sports and many others. Content is relayed on a vehicle, a pipe that conveys it to its desired audience. This pipe or vehicle is the television, the radio station or the newspaper which the layman describes as media. At the end of the value chain is the consumer of the content usually pre-determined audiences of various economic, lifestyle or demographic profiles which require the content for information and entertainment. The consumer of media content could either pay for what he consumes such as in satellite television and newspapers. The payment could also be done on her behalf by advertisers who pay for advertising spots inserted into the media to reach the consumer. Examples of this will include terrestrial television and radio in Nigeria whose income is largely derived from advertising revenue. However, there is a middle road characterized by the print medium (newspapers) whose income is a combination of daily title sales and advertising revenue. In this case, one can say that advertisers’ money is largely subsidizing the price of the titles of newspapers. Newspapers in Nigeria will probably cost three or four times their prices if not for the subsidy of advertisers. And how would terrestrial television have survived in Nigeria if not for the advertisers who keep them going, ensuring that they can bring to our cherished consumers the information and entertainment they so much desire. If therefore anyone has blamed advertisers in recent past for too-much advertising, it is important to remind them that without advertising, there would have been no news or entertainment on television, radio and the newspapers. The media would never have had the resources required to generate the content that our audiences require. We must however not forget the government in the value chain especially in the media it owns, where it plays the role of content generator and provider of subsidy through its subventions to its stations.
While data is not available, empirical evidence suggests that more than two-thirds of media revenue in Nigeria comes from advertising. The economics of demand and supply for advertising space in media such as television, radio and print is therefore critical to the health of the media and entertainment industry. The Nigeria economy is now on the part of enviable growth, thanks to the economic policies of the current government. Foreign direct investment is growing as multinationals invest anew to upgrade their operations and strengthen their firm’s competitiveness. The fact that all of the multinationals are doing this at the same time implies that intra-category competition has never been tougher than the present moment in the Nigeria market. At the same time, the forces of deregulation are breaking down monopoly power in sectors like telecommunications unleashing news waves of competition. These developments have accelerated the demand for advertising media-space. We only need to compare the number of advertising pages in newspapers today compared to five years ago. Sometimes, the newspapers even run-out of pages and they have to print extra pages as inserts just to carry more advertising. In essence, media space supply has not grown in tandem with demand. This large asymmetry in the supply and demand of media space has led to the highest level of media-inflation ever seen in Nigeria. Media inflation has been sometimes as high as 80% year on year in some high-demand media vehicles. Interventions on the demand side by advertisers through their associations and their buying agencies might have moderated the tide. This however has been difficult to control as the fundamental economics of the media industry keeps driving prices up until at least it reaches equilibrium prices. Some media owners have said that media in Nigeria has been under-priced relative to the prices overseas, that the industry is largely today witnessing an appropriate market correction. While we empathize with them, it is important to note that media prices are a reflection of the value of the consumer who consumes the content from media. The wealthier the consumer, the more revenue they can generate for advertisers and the more they will be willing to pay to reach them. The wealth of the Nigeria consumer cannot be compared to those of Europe and the America, hence media prices in Nigeria have remained relatively low compared to the first world.
Other issues that affect media prices in Nigeria include the un-even information flow in the media market between suppliers and buyers. This reflects the lack of sophistication of the media market where audience delivery information is not usually available to determine the true value of media properties. Suppliers have taken advantage of this by largely playing buyers (advertisers) against each other ensuring that they overbid the value of the property. The telecom industry has been particularly affected by this through the aggressive competition among the players and the view that the control of media is critical to market competitiveness. Media space competition does not know industry sectors. Telecoms players compete with soft drinks, breweries and other fast moving consumer goods. As telecom players drove up prices, other players have had to follow. This situation has presented a new challenge of marketing and media management efficiencies to advertisers as their budgets have not grown in tandem with media inflation.
The very low level of media segmentation in Nigeria also creates a situation where everyone (advertiser) on the demand side chases after the same media space. Most media stations have the same type of content for the same type of audiences and broadcast to these audiences at the same time across their stations. Hence, all advertisers have to place ads in the same stations, at the same time to reach their different audiences. For example, advertisers of products for children, youths, men and women place most of their ads around the drive time belt on the same radio stations. Such low level of segmentation creates over-priced media bands and under-priced media bands in low demand periods. This affects asset-utilization and creates market inefficiencies in the media industry. Media stations needs to become more segmented in their overall focus and programming. We are seeing the emergence of this trend in the evolution and success of new sports FM stations that have elected to focus on the male demographic audience of a particular lifestyle. In the print-medium, we have seen the emergence of youth focused magazines leveraging the hip-hop music genre to develop an enduring business. Are there other consumer demographics or lifestyle segments that other stations/medium could focus-on and create a market uniqueness, serve these audiences better than anyone and deliver them effectively and un-cluttered to advertisers at a premium? Such questions will help the media players build the competitive advantage necessary to win on sustainable basis.
Evidences suggest that media-inflation trend will continue in the short to medium term. The unified licensing regime in telecommunications will further drive-up demand for media space by telecom players. More players will come to the market, some with a war-chest funded by the new finances which they have raised. One of the telecom players recently raised a one –billion dollar financing, the effect of which we shall see in its market drive and demand for media space. Competition forces in the financial service sector, as a result of bank consolidation will also generate new demand for media space as many banks seek opportunity to strengthen their consumer franchise. In markets like South Africa, the financial service sector is one of the biggest advertising spenders. The Standard Bank of South Africa dominates the sponsorship of cricket while the English Premier League is sponsored by the Barclays Bank. Such trends from the financial service sector are eventually going to happen on the Nigeria soil.
We are yet to see an earth-shaking development on the supply side of the media industry. We are yet to see the entry of new players in television or radio on a scale that can increase supply, give broader choices to audiences and advertisers and impact on the economics of the media. New print-titles especially in magazines are springing up, largely a copy of themselves, targeting the same audiences with the same type of content. Such titles have therefore not made fundamental differences. The outdoor medium is also getting saturated as new roads are not being built. Every supplier has had to find space on the current roads leading to sometimes ugly media clutter on our skylines. For outdoors in particular, this is good news for outdoor medium owners. Outdoor media inflation especially in the un-conventional spaces like wall-drapes have sky-rocketed as advertisers outbid themselves for the limited number of spaces available.
A critical character of the television and radio sectors of the media industry in Nigeria is its fragmented nature. There are about eighty terrestrial television stations and ninety radio stations in Nigeria. South Africa, a bigger economy than Nigeria has only four terrestrial television stations. Most of the television and radio stations in Nigeria are not economically viable even with subventions from those who are government owned. Most of them are too small to deliver the minimum critical mass of audience that will make them attractive to advertisers on a sustained basis. This is apart from the huge transaction costs and market inefficiencies of buying media in such a fragmented industry. They also lack the resources to generate or buy good content to attract audiences. And they cannot get those resources without advertising. They are therefore locked in a vicious cycle of economic quagmire. Some level of industry consolidation may be inevitable in the Nigeria electronic media sector. We see emerging trends in this direction with the evolution of partnerships and program networks among different stations. The need for stronger market efficiencies would however drive industry consolidation in the medium term.
How can we make the media industry and market more efficient? Markets are efficient when information on goods and services flow freely among buyers and sellers. Such information helps to determine the true value of goods and links the right buyers to the right sellers while ensuring fair economic prices. It is critical that buyers and sellers in the Nigeria media industry work together to improve the quality of audience-rating information used to determine the true value of media properties and spaces. Some newspapers could do far better if their media-space prices reflect the true market-value of the audience they deliver rather than the standard industry association rates. By so doing, they will become more attractive to advertisers who would then be able to spread their media-spend across more newspaper houses. The fact that media spend is concentrated in four newspaper houses in Nigeria implies the need for a new pricing regime in the newspaper industry. We need a collective industry effort to increase the sophistication, gathering, accuracy, robustness, recency and dissemination of audience delivery and rating information. Pending the eventual consolidation of the small media players, we will need to encourage media networks to reduce transaction costs. The media industry does not need a regulatory intervention such as the Soludo solution. Market forces are likely to be sufficient to force the necessary consolidation. The regulator however has a role to play through suasion and encouragement of consolidation among media players. We must also strengthen contract enforcement in the industry. If the media market will be efficient, we must change from using the law of the jungle of “might is right” to the rule of law. Media contracts must be executed by media owners in its true spirit, carried at the time designated, and in the right form. The rights of sponsors of media programs as prescribed by law must be respected. The ambushing, in whatever form of sponsored properties without the consent of the sponsors must stop. All players, big and small must respect the law and not abuse their market power. Buyers of media spaces must also honour their contracts by paying the media houses as at when due. The Nigeria media has all the potentials to be a robust and strong industry. It only requires the collective efforts of all industry players working together to create an economic value chain that is truly efficient.
Olu Akanmu
October 2006
Wednesday, November 19, 2008
How to Attack a Market Leader
By Olu Akanmu
In many instances, we would be launching a new product in markets with existing players or incumbents. Some of these players and their products are already so well known that the task of launching new products into those markets could look daunting. Marketing has many things in common with military strategy. In fact, marketing borrowed a lot of its art from the military. Hence, you find marketers and the military use common words such as campaign, strategy, attacking a position, defending a market. We will discuss how to attack a market leader and win. We will discuss certain rules of successful military or marketing attack.
Know your strength and weakness relative to the market leader or incumbent:
Assess very honestly what you have in your product or your organization or your service that is superior to a market leader. Also, assess your fighting power in a war. Do you have as much resources as the existing players? Existing players will probably have more sales force, more retail outlets and perhaps bigger marketing budget. You must however have one thing that the market leader does not have, that the customers want. If you have this, you are on the way to building a strong attacking strategy.
Do not fight head-on with a market leader unless you have at least three times its resources.
This is one of the most important marketing and military lessons in history. That the defender always has an advantage unless you have at least three times his resources. Remember that the existing players are well known in the market and have built relationships with distributors and customers. The market and customers will always give them benefit of doubt over you. It is the simple rule of the “devil you know is better than the angel you don’t know”. If you want to attack the market leader head-on by claiming that you also do what he does better, you will need to be far better ( three times better) to move the existing players customers. That leads us to the critical rule 3
Successful market attack must exploit the weakness of the market leader.
There is no perfect product. Assume that there are three major benefits that customers in a market want. Usually, the market leader or existing player will be satisfying two of the needs well and will tend to satisfy the third need averagely. This is the way the world is. It is impossible to be tall and short at the same time. If you look closely at the strength of a market leader, you will find a weakness in that strength.
Build your own strength on the weakness of this market leader.
Do not attack him on the areas where his products are already good by claiming you can do what he is good at, better. While this looks like common sense, it is not the way to go. Instead, find the weakness in the strength of the leader; find the things that he couldn’t do well because of what he is doing well. If your market leader product is satisfying the need of tall customers well, design your own product to fit the short customers. As long as there are enough short customers in the market for you to have good business, you are marching on.
Concentrate your resources on attacking the leader’s weakness.
If you have found a solution to the weakness of the market leader, concentrate your resources on attacking the market leader at this position. If because, the market leader is satisfying the need of tall customers, he cannot satisfy the need of short customer well, let all your promotion, leaflets, salesmen and posters just keep shouting “The product that fits the short customer and his need perfectly” In military warfare, resource concentration on the weak point of the enemy is critical to securing beach-head or fresh ground when you land your troops from the sea. It is the same in marketing. If the enemy resources is concentrated in the North (i.e. its sales outlets, sales force etc, attack from the South, and concentrate all your resources there).
Sometimes you may have to attack a niche or a limited area of the market especially if you are small player and you don’t have resources. Niches are areas that the big incumbent players consider (economically) too small for their big size. A small player can find a comfortable home in such areas and do good business provided he can satisfy the need of the niche and the market leader cannot. This is sometimes called flank attack in military strategy. Find a flank that the enemy poorly defends and attack there.
Expand from the ground you have secured using the same rules as above: A war consists of many battles. It is not a one-time battle. So, be realistic. Get a beach-head first. Find a weak and poorly contested territory, attack there and establish your product. Then expand from here but following the same rules as above. No frontal attack. Keep looking for new weaknesses in the market leader’s strength. Look for other poorly defended flanks. Attack them. Concentrate your resources there. Win. Secure your ground and move to the next battle.
Olu Akanmu
June 2006
In many instances, we would be launching a new product in markets with existing players or incumbents. Some of these players and their products are already so well known that the task of launching new products into those markets could look daunting. Marketing has many things in common with military strategy. In fact, marketing borrowed a lot of its art from the military. Hence, you find marketers and the military use common words such as campaign, strategy, attacking a position, defending a market. We will discuss how to attack a market leader and win. We will discuss certain rules of successful military or marketing attack.
Know your strength and weakness relative to the market leader or incumbent:
Assess very honestly what you have in your product or your organization or your service that is superior to a market leader. Also, assess your fighting power in a war. Do you have as much resources as the existing players? Existing players will probably have more sales force, more retail outlets and perhaps bigger marketing budget. You must however have one thing that the market leader does not have, that the customers want. If you have this, you are on the way to building a strong attacking strategy.
Do not fight head-on with a market leader unless you have at least three times its resources.
This is one of the most important marketing and military lessons in history. That the defender always has an advantage unless you have at least three times his resources. Remember that the existing players are well known in the market and have built relationships with distributors and customers. The market and customers will always give them benefit of doubt over you. It is the simple rule of the “devil you know is better than the angel you don’t know”. If you want to attack the market leader head-on by claiming that you also do what he does better, you will need to be far better ( three times better) to move the existing players customers. That leads us to the critical rule 3
Successful market attack must exploit the weakness of the market leader.
There is no perfect product. Assume that there are three major benefits that customers in a market want. Usually, the market leader or existing player will be satisfying two of the needs well and will tend to satisfy the third need averagely. This is the way the world is. It is impossible to be tall and short at the same time. If you look closely at the strength of a market leader, you will find a weakness in that strength.
Build your own strength on the weakness of this market leader.
Do not attack him on the areas where his products are already good by claiming you can do what he is good at, better. While this looks like common sense, it is not the way to go. Instead, find the weakness in the strength of the leader; find the things that he couldn’t do well because of what he is doing well. If your market leader product is satisfying the need of tall customers well, design your own product to fit the short customers. As long as there are enough short customers in the market for you to have good business, you are marching on.
Concentrate your resources on attacking the leader’s weakness.
If you have found a solution to the weakness of the market leader, concentrate your resources on attacking the market leader at this position. If because, the market leader is satisfying the need of tall customers, he cannot satisfy the need of short customer well, let all your promotion, leaflets, salesmen and posters just keep shouting “The product that fits the short customer and his need perfectly” In military warfare, resource concentration on the weak point of the enemy is critical to securing beach-head or fresh ground when you land your troops from the sea. It is the same in marketing. If the enemy resources is concentrated in the North (i.e. its sales outlets, sales force etc, attack from the South, and concentrate all your resources there).
Sometimes you may have to attack a niche or a limited area of the market especially if you are small player and you don’t have resources. Niches are areas that the big incumbent players consider (economically) too small for their big size. A small player can find a comfortable home in such areas and do good business provided he can satisfy the need of the niche and the market leader cannot. This is sometimes called flank attack in military strategy. Find a flank that the enemy poorly defends and attack there.
Expand from the ground you have secured using the same rules as above: A war consists of many battles. It is not a one-time battle. So, be realistic. Get a beach-head first. Find a weak and poorly contested territory, attack there and establish your product. Then expand from here but following the same rules as above. No frontal attack. Keep looking for new weaknesses in the market leader’s strength. Look for other poorly defended flanks. Attack them. Concentrate your resources there. Win. Secure your ground and move to the next battle.
Olu Akanmu
June 2006
Marketing Tool: Segmentation
By Olu Akanmu
Have you ever seen a shoe whose size fits all persons? How smart do free size dresses look on those who wear it? Wouldn’t you prefer a dress that is tailored to fit you and people who have the same physical profile as you? This is segmentation. Any marketing program that does not recognise that customers are different and have different profiles will always be sub-optimal, in-efficient and loose to smarter competition that taps into the segmentation principle.
Market segmentation is the art of dividing our customer base into groups based on their unique profiles. Such unique profiles must however be relevant to the business or product you want to sell. For example, being a Christian or a Muslim may not be relevant in the purchase of detergents. What is relevant is likely to be age, gender and income group. Market segmentation allows us to develop products, services that better fulfils the need of the customers. It also allows us to develop more targeted and efficient promotions program because we know media that the target customer group consumes. We will also know how to speak to them in ways that makes them bond with our service. Perhaps, the overall beauty of segmentation in this environment is that it also allows the service you develop to be price- relevant to the customers you are reaching. You will not be developing or marketing an expensive product for someone who cannot afford it.
So, let us define clearly what is a good market segmentation?
a) Homogeneity: A good market segment will have a unique profile, or consist of customers who are similar enough to be targeted or served in the same way. This may be income groups, gender, age, occupation, and lifestyle. A very powerful segmentation factor today especially in service business, is behaviour of customers or the way they use the service or product. Such segmentation helps to see unique customer insights that enable service improvement, design of strategies to increase customer usage, and profitability.
b) Quantifiable: A market segment must be quantifiable. You must be able to say at least roughly the size of the unique customer group. If you don’t know the size of the group relative to others, how would you allocate your marketing resources to the segments efficiently?
c) Relevant to the product or service: As discussed above with religion, we must ensure that the segmentation factors used are relevant to the business. There is a bank in Nigeria whose billboard says it is environmental friendly as its own unique selling proposition. Yet, environmental friendliness has not been found to be a reason for choice of bank or banking service!.
d) Actionable: Related to the above is that the segment must be actionable for marketing program. You must ask that if I divide my customer base this way, does it enable me to develop more relevant product and services; does it give me unique customer insights for service improvement and promotions?
e) Large enough to make the marketing program efficient: As no segmentation is a problem, there is also the risk of over-segmentation. A market segment must be large enough as to make your marketing program efficient. Over segmentation leads to having customer segment base that are too small and fragmented, such that you will have too many products, too many distribution channels, too many promotions etc. This becomes very costly to the business and defeats the whole purpose of segmentation.
Segmentation can sometimes be an art. You may need to experiment with several ways to slice your customer base to discover a uniqueness or pattern that is not readily obvious to your competitors. There is something intuitive about a good segmentation that gives you a competitive edge. You can feel it. You see something unique about customers. You see new opportunities to improve your service to meet customer needs. You see new pricing and promotion strategies. You see a good business.
So, try it today. Slice your customer base to discover unique customer groups with unique motivations and needs. Test your different slicing models whether they are truly homogenous, quantifiable, relevant to your product, actionable for a marketing program and large enough to make your marketing program efficient. And you will be having a new powerful competitive tool on your hand. Best wishes.
Olu Akanmu
January 2006
Have you ever seen a shoe whose size fits all persons? How smart do free size dresses look on those who wear it? Wouldn’t you prefer a dress that is tailored to fit you and people who have the same physical profile as you? This is segmentation. Any marketing program that does not recognise that customers are different and have different profiles will always be sub-optimal, in-efficient and loose to smarter competition that taps into the segmentation principle.
Market segmentation is the art of dividing our customer base into groups based on their unique profiles. Such unique profiles must however be relevant to the business or product you want to sell. For example, being a Christian or a Muslim may not be relevant in the purchase of detergents. What is relevant is likely to be age, gender and income group. Market segmentation allows us to develop products, services that better fulfils the need of the customers. It also allows us to develop more targeted and efficient promotions program because we know media that the target customer group consumes. We will also know how to speak to them in ways that makes them bond with our service. Perhaps, the overall beauty of segmentation in this environment is that it also allows the service you develop to be price- relevant to the customers you are reaching. You will not be developing or marketing an expensive product for someone who cannot afford it.
So, let us define clearly what is a good market segmentation?
a) Homogeneity: A good market segment will have a unique profile, or consist of customers who are similar enough to be targeted or served in the same way. This may be income groups, gender, age, occupation, and lifestyle. A very powerful segmentation factor today especially in service business, is behaviour of customers or the way they use the service or product. Such segmentation helps to see unique customer insights that enable service improvement, design of strategies to increase customer usage, and profitability.
b) Quantifiable: A market segment must be quantifiable. You must be able to say at least roughly the size of the unique customer group. If you don’t know the size of the group relative to others, how would you allocate your marketing resources to the segments efficiently?
c) Relevant to the product or service: As discussed above with religion, we must ensure that the segmentation factors used are relevant to the business. There is a bank in Nigeria whose billboard says it is environmental friendly as its own unique selling proposition. Yet, environmental friendliness has not been found to be a reason for choice of bank or banking service!.
d) Actionable: Related to the above is that the segment must be actionable for marketing program. You must ask that if I divide my customer base this way, does it enable me to develop more relevant product and services; does it give me unique customer insights for service improvement and promotions?
e) Large enough to make the marketing program efficient: As no segmentation is a problem, there is also the risk of over-segmentation. A market segment must be large enough as to make your marketing program efficient. Over segmentation leads to having customer segment base that are too small and fragmented, such that you will have too many products, too many distribution channels, too many promotions etc. This becomes very costly to the business and defeats the whole purpose of segmentation.
Segmentation can sometimes be an art. You may need to experiment with several ways to slice your customer base to discover a uniqueness or pattern that is not readily obvious to your competitors. There is something intuitive about a good segmentation that gives you a competitive edge. You can feel it. You see something unique about customers. You see new opportunities to improve your service to meet customer needs. You see new pricing and promotion strategies. You see a good business.
So, try it today. Slice your customer base to discover unique customer groups with unique motivations and needs. Test your different slicing models whether they are truly homogenous, quantifiable, relevant to your product, actionable for a marketing program and large enough to make your marketing program efficient. And you will be having a new powerful competitive tool on your hand. Best wishes.
Olu Akanmu
January 2006
Developing a Good Marketing Plan
By Olu Akanmu (August 2005)
A good product does not sell itself. This is a funny logic that runs against the basic human intuition. A good product sells itself only when backed by a solid well thought out marketing plan. What is then a marketing plan?
A marketing plan in simple terms is that program or plan that lays out how a product or service will be adopted by its best target market to produce the desired revenue and profit for the firm. In essence, it is finding those who will use the product or service, how they will use it, where they will use it and sometime when they will use it and by so doing generate revenue for the owner of the product. If marketing planning is however that simple, everyone will be a great marketer; or rather every product should be selling. This does not usually happen. This is because; there are methods for developing a good marketing plan. This is what we shall discuss. Hopefully, you will be able to apply it to your own business.
The steps to follow in developing a good marketing plan are as follows
a) Analyze the business environment of the product or service: Consider the economy, social environment and government policy. Does it have any impact on your business? We will illustrate the marketing planning principle with the example of a common business a small eatery. If the economy is growing, there is more disposable income in circulation. If your eatery is to be located in an industrial estate, are the industries in your location on the positive side of government policy? If the industries grow, there will be more workers who have more money to spend, implying a good business for your eatery. Is your eatery located in a place where population will continue to grow or decline? Apapa Central Business District in Lagos for example has witnessed significant decline of commerce due to the degeneration of the environment, and the decline of some manufacturing industries that used to be located there. Abuja is witnessing massive population surge of people who have no comfortable place to stay and have to eat out. This is good for eatery business.
The economy, social and government policy are larger environmental issues. Come nearer home to the immediate environment of your service. In your defined location, where your customers are likely to be coming from, how many eateries are available? In essence, consider competition and your customers. Are there too many eateries or are there too few for the number of people who may want to eat out. Consider, the size of the market and competition in that market. Do not define your competition too narrowly. Remember that any alternative the customer perceives to product is a competitor. For example, buses are an alternative to railways. Railways are not a monopoly in the real sense.
You may want to consider the level of service provided by current competitors. Do customers have to travel far to get service? Do they have to queue for long? Is the environment comfortable? In essence, you are analyzing the market for opportunity gaps.
b) Analyze the strength and weakness of your product. No product is perfect. A good product must however have more strength than weaknesses relative to its competitors. Please, note that the analysis is done from a customer perspective, comparing your product to the alternatives available. It implies that it is not good enough to be exactly like an existing competitor. You need to be different in a relevant way to the customer.
c) Analyze your opportunities and threats: What are the market gaps you have spotted in your environment analysis? Are there customers who are not currently satisfied with existing services? How many are they? Can you product satisfy these customers? Is the number of customers growing more than those who can supply them? What issues in the environment threaten your business plan? Will government policy change? Will the FCT Ministry enforce the new town planning law? Will there be entry of new competitors with similar or substitute products?
d) Define your objectives: What do you want to achieve in a planning period, usually one year? Put a clear number on it. If you can measure clearly what you intend to achieve, you will never know whether you have been successfully or whether you could have been more successful. Objectives can be revenue, market share, tones or volumes of product that you want to sell in the year.
e) Spell out clearly the risks that you cannot control. There are things that we may never know, control or plan for. Yet, we need to plan sometimes with the best of optimism. A marketing plan for agricultural services may need to spell out good weather as a risk and assume that there will be good rain. That becomes an assumption of the plan. If it turns out, that there is drought, the plan will need to be quickly reviewed as the foundation assumptions of the plan no longer holds.
f) Define your target market. From your analysis, which part of the market do you think will be most waoed by your product? Remember that everybody cannot love your product, but certain sections of the market will love it more than others because your product is more closely aligned to their needs than others. Find out these group or market segment? Is it big enough commercially to give you your revenue objectives? If not, you may have to define your target a little more broadly and adjust your product or service mix to appeal to a wider customer group or segment.
g) Define your marketing strategy. Your marketing strategy has a typical four leg…(Product, Price, Promotion and Place). The classic 4Ps of Marketing. The marketing strategy is about how to take advantage of your strength, minimize the impact of your weakness, and capitalize on your opportunities and ward-off your threats. (from the steps c and d). The tools to do these are the 4Ps of product, price, promotion and place.
a. Product: What is the strength of your product? Is it something you can take advantage of, to differentiate your service in positive way for the customer. Remember that differentiated service tend to command better prices and higher revenue. And if your product does not have any differentiation, can you build one into it as a product plan? How your eatery be different from others. You business will not prosper just by being like others. You have to be different.
b. Price: How will you price your product? Do you want to price a little above your competitors to signal to the market that your product is superior. Many entrepreneurs miss this important signaling opportunity. It is not all the time that low price sells. You can also price below your competitor to achieve quick market penetration. You must however be careful not to communicate the impression of an inferior product with your low price. Always have your target market in mind. A good pricing strategy for a product targeting a different market from yours may not be a good pricing strategy for your product.
c. Promotion: How will your target market know about your product? Are you going to advertise, send out salesmen, print flyers, banners etc? How do you want the target market to see your product/ service? Is it the eatery with a clean environment or the eatery for family outing? You may even consider the eatery for fast service? The way in which you want the market to see your product must be backed by tangible product offering to ensure that your advertising claim is not hollow.
d. Place or Distribution: How will the target market get or access your product or service? Where will you locate and in how many places? For tangible products, are you going to appoint middlemen or distributors? How will you structure your margins reward your distributors, keep them motivated while leaving for yourself sufficient margin for profitability.
h) Develop a Calendar of Action: A marketing plan is an academic exercise if it does not have a clear calendar of program and actions based on the marketing strategy discussed above. Every strategy should be extended to a clear actionable initiative of what is to be done, when it is to be done, how to do it, where to do it and who to do it.
i) Put together a budget and expenditure plan: What do you intend to spend? All your action must be contained within your budget. Develop and expenditure plans by period, month and quarter.
j) Performance Review: Do a periodic (monthly or quarterly review of your performance based on the plan? Are you on target or above target? What are the performance gaps and why? What do you need to do to close the gaps? And if you are above target, did you under-estimate your market potential in the first instance? Would you consider an upward review of your target because of this new reality?
BEST OF LUCK!
Olu Akanmu
August 2005
A good product does not sell itself. This is a funny logic that runs against the basic human intuition. A good product sells itself only when backed by a solid well thought out marketing plan. What is then a marketing plan?
A marketing plan in simple terms is that program or plan that lays out how a product or service will be adopted by its best target market to produce the desired revenue and profit for the firm. In essence, it is finding those who will use the product or service, how they will use it, where they will use it and sometime when they will use it and by so doing generate revenue for the owner of the product. If marketing planning is however that simple, everyone will be a great marketer; or rather every product should be selling. This does not usually happen. This is because; there are methods for developing a good marketing plan. This is what we shall discuss. Hopefully, you will be able to apply it to your own business.
The steps to follow in developing a good marketing plan are as follows
a) Analyze the business environment of the product or service: Consider the economy, social environment and government policy. Does it have any impact on your business? We will illustrate the marketing planning principle with the example of a common business a small eatery. If the economy is growing, there is more disposable income in circulation. If your eatery is to be located in an industrial estate, are the industries in your location on the positive side of government policy? If the industries grow, there will be more workers who have more money to spend, implying a good business for your eatery. Is your eatery located in a place where population will continue to grow or decline? Apapa Central Business District in Lagos for example has witnessed significant decline of commerce due to the degeneration of the environment, and the decline of some manufacturing industries that used to be located there. Abuja is witnessing massive population surge of people who have no comfortable place to stay and have to eat out. This is good for eatery business.
The economy, social and government policy are larger environmental issues. Come nearer home to the immediate environment of your service. In your defined location, where your customers are likely to be coming from, how many eateries are available? In essence, consider competition and your customers. Are there too many eateries or are there too few for the number of people who may want to eat out. Consider, the size of the market and competition in that market. Do not define your competition too narrowly. Remember that any alternative the customer perceives to product is a competitor. For example, buses are an alternative to railways. Railways are not a monopoly in the real sense.
You may want to consider the level of service provided by current competitors. Do customers have to travel far to get service? Do they have to queue for long? Is the environment comfortable? In essence, you are analyzing the market for opportunity gaps.
b) Analyze the strength and weakness of your product. No product is perfect. A good product must however have more strength than weaknesses relative to its competitors. Please, note that the analysis is done from a customer perspective, comparing your product to the alternatives available. It implies that it is not good enough to be exactly like an existing competitor. You need to be different in a relevant way to the customer.
c) Analyze your opportunities and threats: What are the market gaps you have spotted in your environment analysis? Are there customers who are not currently satisfied with existing services? How many are they? Can you product satisfy these customers? Is the number of customers growing more than those who can supply them? What issues in the environment threaten your business plan? Will government policy change? Will the FCT Ministry enforce the new town planning law? Will there be entry of new competitors with similar or substitute products?
d) Define your objectives: What do you want to achieve in a planning period, usually one year? Put a clear number on it. If you can measure clearly what you intend to achieve, you will never know whether you have been successfully or whether you could have been more successful. Objectives can be revenue, market share, tones or volumes of product that you want to sell in the year.
e) Spell out clearly the risks that you cannot control. There are things that we may never know, control or plan for. Yet, we need to plan sometimes with the best of optimism. A marketing plan for agricultural services may need to spell out good weather as a risk and assume that there will be good rain. That becomes an assumption of the plan. If it turns out, that there is drought, the plan will need to be quickly reviewed as the foundation assumptions of the plan no longer holds.
f) Define your target market. From your analysis, which part of the market do you think will be most waoed by your product? Remember that everybody cannot love your product, but certain sections of the market will love it more than others because your product is more closely aligned to their needs than others. Find out these group or market segment? Is it big enough commercially to give you your revenue objectives? If not, you may have to define your target a little more broadly and adjust your product or service mix to appeal to a wider customer group or segment.
g) Define your marketing strategy. Your marketing strategy has a typical four leg…(Product, Price, Promotion and Place). The classic 4Ps of Marketing. The marketing strategy is about how to take advantage of your strength, minimize the impact of your weakness, and capitalize on your opportunities and ward-off your threats. (from the steps c and d). The tools to do these are the 4Ps of product, price, promotion and place.
a. Product: What is the strength of your product? Is it something you can take advantage of, to differentiate your service in positive way for the customer. Remember that differentiated service tend to command better prices and higher revenue. And if your product does not have any differentiation, can you build one into it as a product plan? How your eatery be different from others. You business will not prosper just by being like others. You have to be different.
b. Price: How will you price your product? Do you want to price a little above your competitors to signal to the market that your product is superior. Many entrepreneurs miss this important signaling opportunity. It is not all the time that low price sells. You can also price below your competitor to achieve quick market penetration. You must however be careful not to communicate the impression of an inferior product with your low price. Always have your target market in mind. A good pricing strategy for a product targeting a different market from yours may not be a good pricing strategy for your product.
c. Promotion: How will your target market know about your product? Are you going to advertise, send out salesmen, print flyers, banners etc? How do you want the target market to see your product/ service? Is it the eatery with a clean environment or the eatery for family outing? You may even consider the eatery for fast service? The way in which you want the market to see your product must be backed by tangible product offering to ensure that your advertising claim is not hollow.
d. Place or Distribution: How will the target market get or access your product or service? Where will you locate and in how many places? For tangible products, are you going to appoint middlemen or distributors? How will you structure your margins reward your distributors, keep them motivated while leaving for yourself sufficient margin for profitability.
h) Develop a Calendar of Action: A marketing plan is an academic exercise if it does not have a clear calendar of program and actions based on the marketing strategy discussed above. Every strategy should be extended to a clear actionable initiative of what is to be done, when it is to be done, how to do it, where to do it and who to do it.
i) Put together a budget and expenditure plan: What do you intend to spend? All your action must be contained within your budget. Develop and expenditure plans by period, month and quarter.
j) Performance Review: Do a periodic (monthly or quarterly review of your performance based on the plan? Are you on target or above target? What are the performance gaps and why? What do you need to do to close the gaps? And if you are above target, did you under-estimate your market potential in the first instance? Would you consider an upward review of your target because of this new reality?
BEST OF LUCK!
Olu Akanmu
August 2005
Subscribe to:
Posts (Atom)