Otsikko

Otsikko

21 May 2014

Digital marketing maturity equals success - case Finnish B2B SMEs

Small and medium-sized enterprises (SMEs) are suggested to have a significant role in the revitalisation of the Finnish economy. Their current actual business performance is, however, not as good as expected. Therefore, it is necessary to look more closely at how companies´ own actions affect on their success. This post shows that based on a study, Finnish B2B SMEs do not effectively utilise digital methods and tools in their customer interface. It also finds that digital marketing maturity strongly correlates with success.

Changes in B2B business environment 


Competition in B2B markets is global, products and services are searched, compared and procured across the borders. Vendors have been forced to follow their customers, very few B2B companies can rely on domestic customers only. Local markets that used to be isolated with their own specific terms and conditions, are also changing: the same technologies, standards and processes are in place everywhere, making it easier to demonstrate and offer products by means of inside sales and marketing. Internationalisation also creates brutal cost pressure on all business operations.

Face-to-face meetings have traditionally played a central role in B2B sales. But today, customers are ready to meet sellers very late. According to a survey, on average, as much as 57% of customers´ purchase process is already over, before they are willing to meet with vendors. To win customer orders, vendor companies need thus to be able to present their offerings, references and other competitive advantages before the first sales appointment.

At the heart of the change is the Internet. It has become the first source of information for B2B buyers. And besides information search, the Internet significantly affects on all purchasing process stages. B2B company website and presence in social media are vital and indispensable anchors of Internet influence. The companies looking for information and solutions are then reached utilising inbound marketing techniques. Digital interaction with customers generates huge amount of data. Its utilisation will not only help to develop more competitive products, but also enables ever evolving customer operations. It is verified that B2B companies that effectively use digital methods and tools in their customer interface, are doing significantly better in acquiring customer leads, nurturing leads to paying customers and retaining their existing clients.

Besides evaluating overall digital marketing effectiveness, utilisation of real-time and predictive analytics as well as marketing automation are good yardsticks when estimating digital marketing maturity.

Real-time analytics (e.g. Google Analytics and Coremetrics) can be used, for instance, to follow how visitors will find company website and how they interact with it. This will improve, among other things, customer acquisition cost-effectiveness and understanding of clients' needs and priorities. In addition, it will sharpen marketing communications more relevant. Marketing Automation (for example Marketo and Pardot/Salesforce) automates communications and maintains customer interest in the marketer firm. It makes it possible to serve customers with higher quality and more cost-effectively – and thus get more sales. Studies show that B2B companies, utilising marketing automation, get more and higher-quality customer leads and grow faster than their competitors. Predictive analytics (e.g. Totango and Kissmetrics) with sensor-based customer listening capabilities can identify e.g. customers at risk of churn or intensify cross-selling and upselling.

Status of SMEs in Finland


Then, let us look at how digital tools and methods are used in Finland. A Finnish trade magazine, Kauppalehti,
database was used to pick randomly 108 B2B companies whose turnover is between 10 and 200 M€. Almost all the major industries were represented. Some, e.g. consulting, and construction were excluded, though the analysis is highly relevant to them, too. The selected companies are the best among their peers, so the general situation is hardly better.

To get an overview of digital marketing effectiveness, the companies were examined with algorithm based automatic tool, see also the box on the right. The results obtained can not in any way be regarded as an absolute truth, but anyway, the tool is accurate enough to analyse the situation.


We should be very concerned. The best Finnish B2B SMEs are below average in digital marketing, and almost every fifth of them are even rated bad, see the graph on the left. Only about 5% of the companies are good or excellent.

The situation by industry is uniformly poor, only software companies stand out better, see the graph below.

To get a domestic benchmark for the results, also the biggest B2B companies in Finland were examined (Finland top 20 in the graph). These enterprises are considerably


more advanced, even surpassing the software company results. Because there is a clear indication that the Finnish big ones are not at the utmost forefront of the global development, the SMEs sector is subject to a resounding wake-up call.

Next we examined the use of real-time analytics (by using an automated tool, see also the box above). More than one fifth of the surveyed SMEs do not take an advantage of it. It means that they in practise wander around in the dark, not understanding outcomes and shortcomings of their digital world activities. In the control group, on the other hand, all big companies in Finland are using the analytics. The most commonly used analytics solution, by the way, is Google Analytics that is free to use. US companies are a great international benchmark for the Finnish findings. There the big companies and also the SME sector seem to have faster adopted the use of analytics in their business operations than their Finnish counterparts.

Only 5.6 % of the selected Finnish small and medium-sized companies take advantage of marketing automation. There are no major differences across various industries, few pioneers are emerging in almost all sectors. Every fourth of the Finnish big corporation benchmarks are utilising automation. In the United States, it is estimated that 25 to 60 % of large B2B enterprises use marketing automation. Correspondingly, studies show that the penetration in US small and medium-sized enterprises is at least 10 to 25%. High-technology sectors, followed by consulting and manufacturing industries, are leading the pack in the United States.

None of the studied Finnish companies, neither large companies nor SMEs, used predictive analytics. Because of international examples, it is expected that those companies that have digital service elements in their offering will take the lead in adoption.

Lastly, we studied how digital awareness affects business performance. Business growth, profit, return on capital, as well as the size of international operations were picked up from the Kauppalehti database. The companies under investigation were divided into two categories, based on whether they are rated to be in the top half in digital marketing  (> 50) or in the bottom (< 50), see the graph below. The conclusions are very clear: on average the digitally-leading companies are growing faster and their profitability is better than those of their lagging counterparts. In addition, the international operations' share of net sales was clearly correlated to the digital marketing maturity.


Conclusions


On average, even the best Finnish SMEs are not taking care of their digital marketing very well or even satisfactorily. This is reflected in comparisons with large Finnish enterprises as well as relative to international benchmarks. And because utilisation of digital methods and tools is a key lever to achieve business success, we are facing a similar kind of problem as the whole Finnish economy: though business premises are good, the SMEs are capable of delivering significantly less than available potential. As an outcome, a company might face e.g.:
The situation, however, can be improved. Change is in the hands of small and medium-sized enterprises: they need to re-tool their strategies, processes and competencies to embrace new methods and tools in customer-facing operations - and then implement technologies that are supporting the new approach.

21 February 2014

Internationalisation - a solution to get your troubles far away?

Internationalisation is often seen as a trick that drives company's troubles away. This is not the case, however. For example, if the choice of the first target countries, finding channel partners or optimum location for your own sales office are initially the key issues, essential homework has not been done. Then you need a lucky breakAnd although you need luck in the business world, you must make every effort to try to improve your odds.

A structured approach to internationalisation is connected to the company's objectives, strategy, competences and resources. In this case, it is not a question of tricks, but of evaluation, if it makes sense – and in what way - to aim for international markets. This post tackles the following core questions of internationalisation:
  • Why to enter new international markets?
  • Which are the key issues when planning internationalisation?
  • How to build internationalisation in a systematic way?
These questions are relevant, regardless of whether a company is small or large, whether it is already making business in some foreign countries or is purely a domestic market or startup business. The post focuses on issues that are directly linked to revenue-generating market operations. Thus, for example, manufacturing or R&D resource driven foreign operations are not discussed here.

Why international markets


In most cases market expansion is driven by the reasons related to objectives or a business idea of a company, its products or customer relationships.

Probably the most common reason for internationalisation is the desire to grow. It might be too difficult to increase market share in the currently served markets, or extension of the product range is not considered lucrative enough. Operating across borders can also be a basic premise for the business; for example, many startups coming from smaller countries find their domestic markets far too small to support a profitable business.

Especially growth companies seek to aggressively increase the value of the company: e.g. to improve access to financing or to have better financing terms. Bigger potential markets and initial success in these markets will significantly raise the value of the company and its prestige among important stakeholders.

The most advanced and demanding customers greatly assist in creation of such product functionalities, which also a wider market and laggards will find useful later. So, for example, Swedish car manufacturers were for a long time deemed the pioneers in the area of security, so cooperating with them was good for success also elsewhere. Today, Germans are leaders in many vehicle technologies, so the market pulls keen supplier companies.

Many businesses have found that they cannot find customers for their products on the domestic market. The reason may be would-be customers´ lack of courage to adopt new solutions or business models enabled by them, or simply conservatism of an industry and its playersFor example, a Finnish machinery component supplier, Visedo, were forced to seek first clients in Germany, Austria and France, because domestic players were not forward-looking enough to take the new solution.

Key issues in internationalisation planning


By identifying the business drivers of internationalisation, we can also evaluate globalisation activities conducted so far. They may turn out to be either a great platform to scale the business considerably or it might be best to forget them, because their value is null and void, or they would put the company in the wrong direction.

After this, we will look at how company business idea and strategy affect on global expansion. In a similar manner, we will study in more detail company's products and total offering to customers, its differentiation strategies on the market as well as its customer-facing strategies. This will be used to create an overview of the capabilities and resource gaps that need to be overcome before one can expect success in the new markets. 

Business concept and strategy


A company's business idea defines the target customers, its offering and how the offerings are produced and made available for customers' use. If a company is customer-centric, its target segments and their needs also strongly influence offering properties. When globalising the key is to understand how well the new market customer segments and their needs correspond to the ones in the existing marketMany companies, however, have a technology or product based strategy. This emphasis the need to find in the new markets customer segments and customers that find company technology or product features compelling and value generating.

As a result, any plans to internationalise raise the following questions:
  • Is the business model in today's market well-tested and can it be replicated to new, international markets?
  • Is there willingness and ability to change the current model and how much?
Most of the incumbent companies will end up on the fact that the way of working of the home market cannot and should not be directly copied into new markets. On the other hand, if the business is created global from scratch, as in the case of, e.g. cloud service or application startups, the biggest challenges will again be product, differentiation and customer interface related ones.

Product


Absolute requirements of the market, customer preferences and total offering required by customers are the key product related dimensions. The Internet and social media tools have brought tremendous agility and cost efficiency to the understanding of these issues.

The absolute requirements are usually easy to understand and find out. They include local government approvals and other compulsory localisations. The latter include, inter alia, translations of marketing and user documentation and support of local standards or practises. For example accounting programs require support of local regulations.

More challenging is to evaluate new customer preferences in target countries and their influence on product properties. Of course, there are self-evident things, such as the need to adapt sizing of clothing company collections when moving from Northern Europe to Southern Europe or South East Asia. When we move from technical characteristics to emotional likes and dislikes, local preferences start to dominate. For example, a children's outdoor clothing manufacturer, Reima, has discovered that in Russia, consumers prefer different colours in children´s winter clothes compared to Finland. Increasing global uniformity of values, practises and consumption have created very homologous, international segments - in these cases the need for local preference modifications is small. E.g. many Internet consumer service companies take advantage of this.

Also in new markets, customers usually expect to have a total solution. In many cases, it may significantly differ from the one in established markets. When complementing products or services require external partners, availability and access to them in target markets should be separately assessed.

Differentiation


It is important to be different from competitors, because without it, a company needs to typically compete on price. And because most of the competitors have the same customer value-adding product features, differentiation based on artificially created new product features will succeed rarely. Unless there is something new in the product or business model that clients really appreciate, the solution is to look at a company and product image - which again puts emphasis on company's positioning and branding.

Differentiation formulae of the domestic market is not necessarily transferable to the new target countries. For example, a clothing and textile design house, Marimekko, have a strong brand in Finland supported by a long history, distinctive, locally-luminous leading figures and unique collections with locally well-known designers. When company activities have become more globalised, it has been noted that the domestic brand concept is not necessarily bringing success in other markets.

It is essential to understand that a company and its products do not have to be widely known in the new market, as long as it is well-known in the target customer groups. Who, for example, knows Wärtsilä and its ship engines, if one is not belonging to their target customer groups? In addition to being able to create awareness of the product, it is important that the company's products have a reasonably good reputation and that the target customers are hungry for these products. When we go into a new market, a company usually starts from scratch: it is not known and the clients do not have a special longing for its products - on the other hand, it still has a very neutral reputation. It is worth considering how much, for example, current market references, globalised sourcing decisions and consumption habits, as well as international operations of existing clients could help in the development of the brand. And it is always possible to re-position the company completely, at least in the international markets.

Customer acquisition and retention


Although business idea and strategy, products and total offering as well as differentiation in the new markets would be okay, no success will come without being able to acquire and retain customers. Looking this another way: even the best systems, people and partnerships for demand creation, deal closing and customer loyalty do not bring results, if the previously discussed basics are not in good shape.

The essential steps of the customer relationship cycle include creating awareness among potential customers, building interest and willingness to buy, deal closing and customer retention. If a company is capable of differentiating itself in the market, it is already a good start. A model that has been developed and tested in the domestic markets and that is capable of generating enough demand and revenues, is a good basis for developing activities in the new markets, too.

The key is to understand to what extent the established market practises are suitable for the new markets: which of them can be utilised and what kind of capabilities and resources the company has to change the existing way of working. For example, use of media advertising, solution sales process renewal or web enabled customer service could be considered as corrective tools.

Entering new markets will be most often done with thin investment and expense structureFortunately, different types of Internet and social media based marketing, sales and customer relationship management tools provide cost-effective ways to get ahead. A more traditional approach is to build partnerships based marketing and sales activities: the danger is loosing touch of customers and the market, which, at worst, will soon destroy company's competitiveness.

Systematic internationalisation


After own motives and capabilities in relation to the company´s business objectives have been studied, the decision can be either to go forward or to focus on other business initiatives that are more lucrative or urgent.

If it is decided to continue, a preliminary assessment of capability and resource gaps in the internationalisation should be made. It is also important to determine whether the gaps should be filled with building the capabilities and resources in-house or whether partnerships would be the solution. For example, a company may decide to build sales, marketing and customer service capabilities in the new target countries by itself or it can rely on channel partners.

When still known gaps in the market information have been filled in, a detailed plan for the internationalisation can be made with priorities, timings and budget. At this stage, the target market and channel partner selection issues are already relevant. 

6 February 2014

Go-To-Market: more customer-centric, hungrier and more agile

Turbulent market environment is constantly changing business and competitive conditions. New technologies blur industry boundaries, shorten product life cycles, change business models - and bring new competition through globalisation. In this environment, Go-To-Market (or GTM) success is becoming ever more important - competitive advantages are less and less sustainable; instead of technology and supply factors, demand and customer interface capabilities are becoming increasingly vital.

Today, most companies already have functioning GTM processes. They are useful in commercialising a new product or business model, opening up new markets or even when a new company has been acquired. 

This paper will first introduce GTM process and its benefits. After that some of the pain points will be discussed, and we shall show, how a more customer-centric, hungrier and more agile approach will boost results.

GTM process and its advantages


GTM activities make company's business strategy concrete by delivering its solutions and their value to target clients, see also a simplified picture below. In reality, however, GTM is a process, which covers activities from definition of a product to pricing, distribution, marketing, communications, sales and customer support.


Benefits of a well thought and implemented GTM process include:
  • allocation of resources to the most lucrative business opportunities
  • prevention of organisational silos
  • cooperation between centralised and decentralised activities
  • sharing best practises and learning
Metrics need to be created for GTM processes. The intent is to evaluate product and business profitability. Evaluation of project success already in product development and, respectively, GTM phases, ensures that resources are allocated only for the most lucrative opportunities. GTM thus acts as a tool to develop company's product portfolio.

Secondly, GTM process and project objectives bring together different functions of an organisation, thus inhibiting silos. This will also ensure that all the necessary skills and knowledge is just in time and adequately available. In addition, it is easier to create new practises in domains, which are new or require very different types of knowledge-based inputs. Smoother cooperation between marketing and sales activities is often highlighted as a great example of GTM process benefits.

When a company expands and becomes more globalised, it also needs to grow certain functions on a decentralised basis, in other words, close to customers locally. These include, for example, implementation of marketing and communications, sales and first level customer service. GTM process links centralised operations, such as specifying a product and planning of marketing and communications, seamlessly with distributed ones. Also GTM project objectives, strategies and other guidelines are centrally defined. In addition, prioritisation of regions and countries is usually centrally managed. By centralising selected GTM activities, duplicate work is avoided and local implementation gets adequate support.

GTM also allows for sharing of best practises within a project and between projects. Thus the most successful ways of working of the best individuals and teams become an integral part of the entire company's expertise, which is then available and repeatable from a project to another.

Improvement needs


As such an existing GTM process does not guarantee success. Among other things, drastically changing customer purchasing behaviour, multichannel marketing driven by digitalisation and new business models are forcing GTM models for continuous improvement.

More customer-centric GTM


Company products need to resonate well with customer needs and market demands. Thus increased influence of both consumer and corporate customers in the various stages of purchase process calls for rethinking and adjustments in a way a company approaches market. It is also important to find unique customer segments, whose needs can be met better. To tackle all this, GTM activities need to be built to meet customer relationship objectives and strategies, giving possible internal legacy requirements second priority.

Market studies conducted before product development start do not guarantee that products match with customer needs. Rapidly changing markets require that development activities are closer integrated with customers´ feedback on products. Customer development, which has its roots in the startup world, is playing a growing role to facilitate parallel product development and customer testing. Especially huge progress in the development of Internet and social media tools allows for market testing and possible corrective actions already in the early stages of product development. In a similar way it is possible to figure out target market prioritisation and GTM activities localisation needs.

Hungrier GTM


Overall effectiveness, quality and cycle time can be considered as baseline yardsticks of GTM process. However, this is not enough. Tougher business metrics should also be introduced: lead generation impact, sales increase and evaluation of GTM process on the basis of return on investment (ROI). By focusing on business outcomes, we can get rid of bureaucratic way of working, where checklists dominate over hunting for results.

Digital marketing and sales methods have been at the forefront of bringing measurability. But technologies are not to be seen here as masters but slaves - or enablers at most. The key is to create GTM strategies and processes that focus on right things. Furthermore, we should not forget people, who run the process and who truly need to understand and know how to operate the new fact-based model.

More agile GTM


Although a company would have created the world's best client-centred and business metrics-driven GTM process, it does not insulate the company from changes in the operating environment. These challenges require adaptability, responding by foresight or by further developing own activities. The keywords are continuous improvement and best practise sharing.

Activity and environmental data collection and analysis, as well as test and learn principle are the cornerstones of continuous improvement. Data insights lead us to the real issues and improvement options, which will be verified for operational scaling by testing. This makes it possible to avoid costly mistakes made with non-working or outdated GTM practises, and paves way for better results. 

19 December 2013

Ass laden with gold and other means to conquer new international markets

Philip, Alexander the Great 's father, is said to have remarked that with a gold laden ass one can conquer an invincible castle. Such tactics are not appropriate in today's market conquest, but instead, this post presents some ideas on how a company can make its path to international markets easier.

As a prelude an example of GSM system sales in Germany early 1990s. Initially, our main target was just licensed mobile operator, Mannesmann Mobilfunk or briefly D2 (now Vodafone Germany). Our starting point was not good. As a system supplier, we were very poorly known in Germany, and we did not have anybody in the country to promote our business.
But after all, we had something over there: TV product development, manufacturing and maintenance, PC maintenance, cable machine operations and much more. Some of our German operations were also global market leaders, e.g. in rubber mats for airport luggage carousels. We utilised these assets to build our marketing messages: our local presence, commitment and capabilities to support mobile operators. But we were beaten. That time we did not win the D2 deal. But we learned and gradually built a more solid foothold in Germany - and as a result won very significant deals with Telekom (D1), E-Plus - and also with D2.

In the following paragraphs we take a closer look at where companies can find building blocks to break into new markets.

Other businesses 


A company, which already has an existing business in a new country, should make use of it. Typically, a new business is not known, it lacks credibility, it is not seen trust-worthy and it is missing connections with potential customers and other business-critical players.

An existing country commitment sends a strong signal that also the plans related to the new products are serious and long-term. Secondly, local company infrastructure, such as offices and websites, can be used as stepping stones for building local presence. Thirdly, it is possible to use the relationships and contacts created by the already established businesses and their key personnel to lower the barriers to create new customer relationships and other partnerships. Although in the German example above, we were not immediately able to achieve positive results, credibility and support created by our other German businesses greatly reduced the time to close the first deals.

Local partners


If a company does not have prior operations in a target country, also partners can become helpful. Besides rapid establishment of activities, partners can provide, for example, complementary resources, required local flavour or existing relationships with target customers. For example, we managed to win a GSM system deal with Austrian Federal Telecommunications Authority (ÖPTV) through partnerships with local Kapsch, Schrack, Siemens and Alcatel. The biggest benefit was getting involved in local, slightly political decision mechanism, but the partners contributed some know-how assets and customer understanding, too.

The spectrum of potential partnerships is very broad, ranging from agents and representatives to manufacturing cooperation and mergers and acquisitions. Besides longer term goals, also risk and control are important factors to consider when selecting partnership models. For example, a local distributor or reseller responsible for customer sales minimises risk, because there is no need to invest in offices, distribution, sales force, marketing and customer support. On the other hand, control of the market is reduced: for example, what kind of market activities are conducted and how much customer and market understanding is accumulated. All this limits degrees of freedom in company's future market operations. Greater control generally requires greater own investments - this also makes it possible to better define company's  future aims.

Piggybacking


It is also possible to follow internationally domestic or other established market business partnerships. This is called piggybacking. Typically, customers and distributors are the players that you should look at.

When a principal company expands its operations internationally, its suppliers often have an opportunity - in practise often an obligation - to follow it. Especially in the B2B markets, this is a useful model of internationalisation. It is usually assumed that a supplier will invest enough in new markets. Besides sales and customer support, it may mean building of operations and R&D capabilities. But there is a risk that resources are too much focused on the original client company. This makes it difficult to acquire new customers in the territory and exposes the supplier too dependent on one principal's business fluctuations. Nokia mobile phone business and its subcontractors are an excellent example of this. Nokia pulled for example, Elcoteq, Perlos and Savcor to new markets, where these companies were not able to adequately expand their bridgehead positions.

If distributors, system integrators, retailers and other distribution chain players manage to create on one of the markets healthy and successful business with a company´s products, they have a strong incentive to try to repeat the same in other areas too. Distribution partners may be already present in these new countries or the countries may be for some reason easily accessible for them. If a company does not create own understanding of new market needs and potential, its long term operations and success may be at risk. As an example of distribution cooperation we look at the Spanish system integrator, Omnilogic. Over the years, we had successful cooperation in Spain, where Omnilogic took care of close to all customer contacts and deliveries. Later, the company expanded into Mexico and South American countries, thus opening the markets also for our products.

Other opportunities for international expansion may appear, for example, through technology vendors and financiers.

Digital tools


Digital marketing and sales, as well as compelling content, are a great way to pave the way for the creation of new markets. The key is to create in the target market company awareness among potential customers, their trusted thought leaders and other key stakeholders. Company website, localised for the new markets, is the centre of all action, providing target groups with important and interesting content. The target is to attract visitors to the website by participating in discussions both on traditional and social media.

In many cases, it is also possible to acquire customers through the web. A localised, or even an international online store, together with content marketing, can attract leading-edge customers. These are very important as the company penetrates more deeply into the new markets.

Modern inside selling tools can be used to sell also quite demanding products without a local presence. If, however, the complexity of the product, or other factors require local support, inside sales can assist to successfully pass the first customer decision criteria, thus creating better pre-conditions for the expansion to new countries.

Different business model


Business models that are different from the ones used in established markets are often a good way to penetrate challenging markets. There can be changes for example in monetisation logic, ways to approach customers and company's offering.

Licensing is natural for the companies that own a specific factor that is important for competitiveness. Such factors may be the brand of a product, its design, technology or manufacturing process. Licensing is also a risk-free way to get a new product on the market and customise it to local requirements. A locally established licensee partner gives an end product a local flavour, so licensing is particularly suitable for countries with high entry barriers. The challenge is the legacy that licensing creates, if a company later tries to build deeper market operations.

Franchising is a fast way to build a presence in new countries. Typically, it is used for providing consumer or business services.

Nokia's U.S. market entry utilising Tandy - Radio Shack brand and distribution chain is an example of complying to local requirements in customer interface. In a similar manner, Nokia cooperated with Alcatel and AEG in GSM base station development and marketing to create access to new, previously closed markets, such as France and Great Britain.



Spearheads


Spearhead tactics can build a beachhead in a new country. The goal is to use a selected product or service to create relationships with first customers and then deepen this relationship by selling more. Since the first deal is not yet meant to produce profits, pricing can be aggressive or the product or service can be even provided free of charge. Low-cost experiments, or pilots, are often used to reach the same target. The Internet makes it easy to create free service offerings, whose sole purpose is to market a company and make actual product sales possible.

The last example is from the same country as the first one, Greece. We sold the local Telecommunications Authority, OTE, a cellular network planning and measurement tool. The sale was not as such profitable, but it enabled us to create a client relationship and also awareness of our capabilities in the market. Later, we were rewarded handsomely.

12 December 2013

With a little help from my supplier friends

It is no use to develop only a little bit better product. Just adding new features is seldom the way to build company competitiveness and increase sales. Customer value is created by bringing additional benefits or pleasure. This often requires business model change.

Also Finnish companies have a lot of room for improvement. Too often business growth efforts are product-driven, with only marginal product improvements or changes.

When innovation is customer-centric, there are no more limitations to consider also skills outside the firm. Innovation can be based on building blocks originating from customers, suppliers or academia. This post focuses on the supply partners.

First we shall go through an example in which a company had a strong vision of disrupting an industry and bringing new value to customers. Because the company did not have in-house all the competences needed for the new products, it created various partnerships with technology suppliers. As a final ingredient for success, also a new, innovative business model was created.

Somewhere in California


In November 2000, I spent half a day at PortalPlayer, a company in Silicon Valley to meet their management and experts. The company was small, about 100 people; I came from a large, successful mobile communications company. The core know-how of PortalPlayer were solutions for portable music devices. The solution consisted of a dedicated music microchip, embedded software and a PC application. In addition, the company was able to provide a reference design for customers' own product concepts. In our company we were studying ways to expand our business and music-related products were also under consideration, thanks to the emergence of first MP3 players and Napster.  Although I was impressed by Portal Player´s capabilities, we did not start any cooperation with them nor were capable of developing music related businesses at that time.

Around the same time with my visit, another Silicon Valley company and their CEO envisioned creating and providing new, music-related experiences and solutions to consumers. The name of this company was Apple.

Apple had already made the decision to bring music management software for iMac computers. It was based on the SoundJamMP product, whose developer Apple acquired in July 2000. After some further development it was first launched under the name of iTunes in January 2001. But Apple wanted much more than that. The next step was supposed to be a portable MP3 player. Extremely high requirements were set for the player, with usability and value to the user raised to a whole new level compared to its competitors in the market. It was not important for Apple to design the electronics and the operating system by themselves, so they signed an agreement in early 2001 to use Portal Player reference design as the basis of the new device. iPod was launched in October 2001, and supporting iTunes music store in April 2003. The rest is indeed history.

Back in Finland: Too few ideas and too much risk avoidance


Also Finnish companies need to continuously improve their competiveness by bringing new products to market. Very different types of targets can be pursued. According to an often used breakdown, a company can expect benefits in one or more of the following areas:
  • Improved customer experience and customer engagement
  • More streamlined operations
  • New business or business model
Synergy recently published a research paper, in which it examined innovation capabilities of 50 Finnish companies. All the companies operate internationally and all have significant development activities in Finland. In addition, the results were benchmarked against corresponding international research, consisting of 200 companies. The conclusions were clear: Finnish companies' projects focus too much on marginal improvements and the companies also have a shortage of good ideas. The study has other good observations, but this post is not discussing them further.

Innovation in Finnish firms vs. global benchmarks
When the results are investigated in detail, it is found that Finnish companies avoid risk compared with international counterparts, see also the image on the left. This is reflected in the high proportion of product improvements and modifications as well as additions to existing product lines. Although a better customer experience would be a key objective, probably also lower material and personal costs are important drivers. This is not the way to build competitiveness.

Similarly, compared with the control group, the Finns invest lazily in projects that create new businesses or new, genuine innovations. And since the improvement of customer experience and retention are often outcomes of new business models, many of the companies are thus loosing the potential for higher margins.

Synergy's research also showed that many companies rely too heavily on in-house expertise and resources in generating new product ideas. There is not enough attention to understand customer needs, and the appeal of ideas is not tested with customers early enough. Similarly, if a company culture over-emphasizes technical or product-related know-how, suppliers and partners are easily left with a mere implementer role. As a consequence, new ideas and solutions, which would make it possible to take bolder development moves, are often effectively hidden.

Conclusions


Both the results of studies and the above example show that customer orientation and open-minded cooperation with other companies are the key to a successful business.

The great promise of seeking ideas and solutions from other companies is to have access to the best experts in each of the competence domains. The challenge is to find the right partners and to be able to create a close and trusting relationship with them. In order to partnering be truly useful, a company must be able to build through customer understanding a clear vision of the new brave world that will be available for their customers.

In addition, company processes need to support innovation with others: division of labor between own and other companies´ efforts as well as integration of the outputs. Also, there must be changes, how potential partners are discovered. The key is to keep eyes and ears open for companies that have an offering that could help to implement the targeted customer benefits. Thorough preparation of specifications for external purchasing and strict competitive tendering are well suited only for marginal product improvements and extensions. In some cases such advanced cooperation models as consortia and innovation communities might prove to be most successful.

And finally, in the development of new business models, supplier partners are - if possible - even more important. Besides ideas and solutions, these might have such kind of knowledge and insights that will help clearing up the previously insurmountable obstacles.

28 November 2013

Local mobile services - saviour for offline stores ?

Consumer buying behaviour change, driven by digitalisation, is inexorably advancing. This challenges consumer product companies to take advantage of new models to utilise the change. For traditional retailers, having physical stores, e-commerce growth means a serious threat. But after years of false promises, local mobile services based on wireless proximity technologies are wakening up. At best, they could get modern, digitally informed consumers to use their money in brick and mortar shops also in future.

Local services not-so-successful history


When computer-like features started to gradually appear in mobile phones in the 1990s, there was also a wave of interest in local services supporting retail merchants. In 1999, I was involved to establish a startup with a mission to use only recently published Bluetooth (BT) technology to send marketing messages to phones that were taken to shops. After that, I developed similar type of businesses at a large Finnish mobile phone company: in 2002, for example, we created patents for applications in local services context and for shopping experience improvement tools. Neither the startup nor the big company case turned out to be a success.

A number of other projects came up, both in local mobile marketing and in local payments. In addition to Bluetooth, for example Wi-Fi, RFID (or its offspring, NFC, widely used in mobile phones) and IrDA technologies were in use. For example, in the United States Wideray IrDA solution offered local data services for offline businesses. A little later, Wideray landed also in Finland, where Sonera's also Bluetooth-enabled iJack service was used, among other things, by individual stores, shopping malls and restaurants.

Wireless local marketing of brick and mortar stores has not really taken off in the last ten years. Today, it is easier, however, to analyse the reasons. The main obstacles were the factors related to retailers, ecosystem and mobile devices, for example:
  • E-commerce has only gradually disrupted retail business, its global value in 2005 was about $ 150 billion - the forecast for 2013 is already $ 1.2 trillion
  • Digital marketing has only recently established its position as a major tool for retailers and consumer product manufacturers
  • Mobile marketing formats and business models were underdeveloped for a long time; ten years ago, the global market size was only around 100 million dollars, the 2013 forecast is close to $ 15 billion
  • The number of mobile phones suitable for local marketing, i.e. smartphones, had a sharp increase only after 2007, after Apple launched iPhone; iPad tablets first came on the market only in 2010
  • Usability of smartphones has not been very good; easy to use applications enabled by app stores and other usability improvements have gradually changed the situation

The great promise


Next we shall discuss factors which, if successful, could make local mobile services a significant marketing channel - or, if this is not the case, delay realisation of the great promise till not foreseeable future.

Retailers and digital change


Consumers' growing willingness to use digital channels has resulted in a huge increase in e-commerce and fierce price competition, which affects both online and offline merchants. Price competition also lowers margins, which creates pressure on consumer product manufacturers, too. In addition, digital channels have become key information and communication tools between brands, retailers and consumers.

In this context, both traditional brick and mortar merchants and their vendors are looking for new success factors by creating new, digital in-store experiences. By approaching customers when they are presumably ready to buy, i.e. when they are already in-store or in the immediate vicinity, marketing messages can be targeted much more precisely than when using only standard user profile and behaviour based models. The potential value of these messages, both to consumers and marketers, is therefore very high.

Mobile payments, as well as access to product information through reading QR codes or barcodes have been the main drivers of mobile device utilisation in stores. In addition, also local digital in-store marketing will benefit from wider and wider use of mobile technology. Marketing tools provide consumers, among other things, with information about new products or promotions, coupons, store maps, shopping lists, recipes, and other additional services that support products or purchasing. Identification of consumer location is the prerequisite of the service provision, and there has been various technologies available for that for a quite a long time.

Although the benefits of local digital marketing for merchant business are very concrete, the ultimate question is, however, consumer willingness to receive marketing messages and use related services. On the basis of recent studies, consumers seem to increasingly want local digital marketing, but it is not yet clear whether this is enough for large-scale deployment. It is also fair to assume that consumers must be able to determine who and when can approach them.

Ecosystem and development of mobile devices


Perhaps the most important event in the development of the ecosystem was Apple's recent iBeacons concept release. iBeacons enables low-cost Bluetooth Low Energy (BLE, or BT Smart or BT 4.0) beacons. They emit signals that Apple smart phones or tablets automatically react to when they come within range of the beacon - maximum distance of up to a few tens of meters. Offline retailers can use the concept, for example, to allow payment anywhere in the store, for coupons and other local advertising.


A number of BLE beacon manufacturers have already entered the market. For example, Estimote offers three beacons for $ 99, Sonic Notify ten pieces for $ 300 and Roximity service costs $ 10 per month for one beacon. Adomaly is an advertising network to reach consumers in-store using beacons.

NFC technology use, again, is widely supported by mobile phone vendors, mobile operators and payment service providers, but it is already widely predicted that its growth will be stalled. The problem is that key stakeholders are often competing with each other, which has led that NFC software package is not widely enough available in phones. In addition, Apple has not been favourable to NFC, and it looks that BLE will be positioned as a direct competitor to NFC in local mobile payments.

Amount of smartphones and tablets, as well as their usability are already at good enough level to boost local services mass market. Although all the major software platforms have their own application stores, processes and models to bring also store related applications available for consumers are already sufficiently developed. Notably, Android platform is the most fragmented one, in Apple and Windows Phone environments there are less problems.

BLE is already supported by most iPhone models, 4S, 5 and the newer ones, as well as by Apple´s tablets. In many high-end Android devices manufacturers have already implemented BLE support, and the support on Android platform level is coming in the near future. By the end of this year all the Nokia Lumia WP models will also support BLE.

In summary, local mobile marketing is still a great promise for retailers and consumer brands - but realisation of the promise still faces significant stumbling blocks that need to be avoided:
  • There needs to be a common mode and format of communications between consumers, retailers and brands, and this needs to be supported by a sufficiently wide range of mobile device manufacturers and other ecosystem players 
  • Offline merchants need to be willing to build the necessary local infrastructure in their stores, and use it effectively for marketing and other customer relationship activities
  • Consumers need to be willing to adopt a new, mobile device based way to get information about products, access promotions, pay for purchases, etc.

20 November 2013

How to sell an innovative solution to conservative firms

I have many times come across a statement that company's customers are conservative and, therefore, selling them a new, innovative solution is difficult and slow. These customers include machinery industry, construction, services companies - and so on. This is partly true. But only partly - often company´s own legacy, ossified ideas and practises, is a major obstacle to commercialise new products and business models.

Industry after industry has seen its traditional business truths radically changing, driven and enabled by globalisation, digitalisation and other change forces. Also in disrupted industries, companies have complained about conservatism of practises and customers. And even though an industry sector would not be experiencing outright disruption, greater efficiency measures as well as marginal refinement of products and business models are not sufficient to ensure future success.

Current well-established way of working, with existing products, business models and customer approach need to be questioned when new solutions are brought onto the market. This post presents food for thought to consider ways, how to reduce obstacles to commercialise new, innovative solutions.

Sales process renewal


When a company develops a solution that will bring business benefits to customers in new ways or whose business model is different from usual, old recipes to conduct sales are no longer successful. A new solution can bring to customers a whole new range of benefits, which often in turn means that both buying process and its main influencers are changing. Thus it is up to the company, developing an innovative solution, to rethink its sales process.

Adoption of new solutions requires strategic considerations in client companies, which in turn takes decision-making higher than usual, often the senior management level. A vendor company must be able to influence these higher-level influencers much more deeply and using the language that they prefer. This calls for linking the benefits of a new solution to customers´ key business objectives. Supplier company´s top management commitment to and participation in sales work is also of utmost importance.

There are often parties in client companies that in the past have received less attention, but to whom the benefits of a new solution are important. For example, persons responsible for environmental affairs will surely appreciate solutions that help to reduce the environmental footprint of a client company or the one caused by its products. On the other hand, customers' financial officers may find business models that are based on costs proportional to income, instead of investments, very lucrative. In addition, e.g. business management and development, as well as sales and marketing management are more traditional, potential allies. It is essential to have at least one senior protagonist in a customer company, who can help to navigate client´s decision-making depths and shallows.

Just as important as finding allies, is to identify and neutralise potential opponents of a new solution. The key here is to understand the mechanisms how a solution changes a client company and thus identify the influencers, who may react negatively to change. Cooperation with protagonists makes this much easier.

Sales and marketing tools renewal


Finding right buyer contacts in customer companies is not enough. It is also worthy of developing suitable sales and marketing tools for innovative solutions. They are needed to handle reactions and emotions that relate to encountering new things, such as uncertainty, scepticism, ignorance, suspicion and fear. And because the issue is not simply communicating facts, it takes longer than usual to win customers. Here are some impetus to renew company toolbox.

Typically, more than half of the customers' buying process is over, before they are ready to meet with representatives of supplier candidates face to face. And in the case of new solutions, customer engagement needs to be started even before customers consciously initiate their buying process.

At the centre of this are digital sales and marketing tools, in particular inbound marketing. If at all possible, the target is to achieve thought leadership in areas that relate to a new solution and that are important to customers. This is done by presenting in-depth and well-justified information. The aim is not yet to sell a new solution, but to show company's in-depth understanding of the customers´ business environment challenges. Thus it will be possible for the customer base to adopt innovative features of the solution. Marketing and sales need to seamlessly and overlapping work together; when a customer demonstrates willingness to consider a new solution, it is time that inside sales and traditional field sales grab the baton.

Benefits justified by numbers are important to overcome customer doubts. Various modelling and simulation tools can be provided either free of charge or with a reasonable cost, acceptable to customers. Tools can be provided either via a web based service or as a standalone application. Web based tools are easier to link to other digital marketing activities. As with all aspects of digital content and tools, you should consider all of the key customer influential parties: for example, needs of financial officers and environmental people are very different.

A new, innovative solution is rarely accepted before experimental use, a pilot. Other clients´ pilots may of course be good reference cases, and in the best case they can also be utilised as part of content marketing activities.

Influencing through customers' customers


Customers' willingness to adopt a new, innovative solution can also be affected through their own clients. The basic idea then is that customers´ customers will appreciate and want the benefits that a new solution would make possible. In the best case, this may even mean that they specifically want a solution of the supplier company as a part of the overall solution they purchase. For example, a machine or device vendor may be able to convince its system supplier customer's customers that its new solution, utilising sensor and Big Data technologies, should be a part of the total supply. Consumer customers, on the other hand, appreciate for example Shimano bike parts, and Intel microprocessors, thus creating a strong pressure on bicycle and computer vendors to use these components.

Utilising customers´ customers requires two things:
  • A company is able to understand the business of its customers´ customers and to determine the benefits that the company solution provides them
  • A company must be able to communicate these benefits to customers´ customers
Digital tools, and in particular, inbound marketing, are an excellent and inexpensive way to reach end customers. The same type of tools can be utilised as in the case of actual customers; the content of course, needs to be adapted for a different target audience.

Partners in strengthening the messages


Partners typically complement a company 's offering and business model. In addition, they often have a significant role in overcoming customers' uncertainty and other obstacles to adopt a new solution. In order to successfully utilise partners, a business model must provide also them with enough stimuli to work actively together with the supplier company.

A good example of a complementary offering are services provided by partners: by agreeing on cooperation with an installation and commissioning company that is trusted by client companies, a machinery or equipment company can lower purchase threshold. Another option for this kind of company is to have a new solution as a part of a larger system offering, provided by a company well-known among customers. A third example, again, makes it easier for customers to accept a new solution by including elements of a component supplier, highly appreciated by customers.

Finally, a few words about second sources. Purchasing processes of many companies require second sources for key components or sub-assemblies. This is challenging for companies that use innovation as a means to differentiate themselves from other market solutions, aiming hereby to gain competitive advantage. However, customers need to be convinced that their business will not be greatly disturbed, even though a supplying company would face severe problems. Different types of contractual terms, such as escrow paragraphs, can give restricted security. Licensing a new product to other manufacturers or system suppliers is an example of other ways to solve the problem.

Utilising influencers


Especially in the early stages of the buying process, customer companies are looking for information from sources on which they rely. These sources are herein referred as influencers or advocates. The influencers may be individuals, consulting firms specialising in the industry, research firms, trade publications, etc. Their assessments, reports and opinions often have a major impact on which supplier companies and solutions customers are taking a closer scrutiny.

The most important thing when convincing advocates is to provide them with tools to increase their social capital: helping them to make their reputation better and increase their visibility. When information related to company's innovative solution is accompanied by new insights and views, it will have good chances to be accepted and further shared by influencers: resulting in increased customer awareness and appreciation.

Besides traditional mechanisms, such as face to face consultation, advocates can be efficiently and cost-effectively reached through the Internet and social media. In particular, inbound marketing tools make it possible to target right parties with right messages at the right time. Inbound marketing activities, as well as other activities to engage with influencers, must begin early enough. In practise, this means parallel execution with solution development.

If clients´ customers or partners are important for the commercialisation of a solution, similar type of measures as described above can be conducted to reach them.

Utilisation of pioneers and revolutionaries


Existing customers are known to be the most receptive ones for new solutions, due to close relationships between the two companies and their proven appreciation of the supplying company's solutions. But some customers are more innovative and faster than others. These customers should be identified, and sales and marketing efforts should be focused to them. Pioneer company references are then worth gold when tackling slower and more conservative customers.

If current customers do not find the courage to use a new solution, it is worth to look for industry customers, who are willing to rebel against prevailing ideas. These may have aggressive growth targets, desire to differentiate their offering and business model or they may strive to innovate using their broader ecosystem. As always, a company should not just wait to be contacted. It should identify interesting players and approach them with messages that fit with rebellions´ business objectives.

Revolutionaries that are industry outsiders are ultimately most open to new ideas. In the best case, a supplier company with an innovative solution is thus pulled to huge success - if things turn out to go badly, an outsider is excluded and forgotten.

Conclusions


This post is meant for companies that are developing - or planning to develop - new, innovative products and that are facing significant challenges to commercialise their solutions due to customer conservatism and inertia. The key conclusions are:
  • Potential customer and industry conservatism is just an excuse for innovation laziness and poor results; a company should also be able to renew itself; besides new solutions, this means new approaches, methodologies and tools for commercialisation.
  • To commercialise a new solution, a company needs to be active on the market early enough; the ultimate goal is to reach thought leadership in the discussions related to the new solution topic; digital media tools make this possible in a cost-effective manner.
  • Development of a new solution and its commercialisation should be overlapping activities; market and customer commitment to a new solution is best achieved by listening to customer needs, by giving them the building blocks to first understand the value of a solution and by supporting them when they use this value in their business development.