Tag Archives for differentiation

2 Reasons for Apple’s Distortion on Tech Sector Profitability

I received the below chart from Business Insider Monday, which highlights that without Apple the technology sector profits would be down 3% this year vs. with them profits are up 7%.  Why is Apple out performing and at such a degree against the back drop of all other technology sector companies?

Source: Chart of the Day from Business Insider
Without Apple, the tech sector's profits would have been off by 3% in 2011, according to this chart from Barclays Capital. With Apple, profits are up 7%.

There are many possible explanations and many have come before me trying to explain either the “Steve Jobs effect” or that the Apple  brand is the main component. Two points I think are at play are 1) differentiation and 2) marketing capabilities (the Big “M” marketing not marketing communications). And yes, brand is at play and I will show you that too.

First consider this statistic on differentiation, 80% of managers say their company is strongly differentiated but only 10% of customers agree (C. Zook and J.Allen, “The Great Repeatable Business Model”, Harvard Business Review, November 2011).  I think this is more true than most technology executives would allow themselves to admit. Unfortunately for those companies, this is within any organizations full control to find relevant differentiate in their respective markets.

Source: Chris Zook and James Allen, “The Great Repeatable Business Model”, Harvard Business Review, November 2011

The second is marketing capabilities, Keen’s body of academic research we know that a 1% increase in market orientation and marketing capabilities yields a 6% increase in return on assets. This coupled with a brand impact for Technology firms where 1% increase in brand equity drives over $650 million in additional cash flow the next year or over $1.3 billion in market capitalization.

Source: Keen Strategy Research

The bottom line is Apple is excelling at creating meaningful differentiation and has built the right market orientation and capabilities to manage the business and as a result the brand. Apple is also taking advantage of arbitrage (whether they realize it or not) because in the technology sector companies just are not as good on these dimensions and hence there is more upside for a firm that can get this formula right.

Can We Save Marketing?

indecision dice

Image by snigl3t via Flickr

Over the last six years, I have had a personal interest on the verge of a crusade to better understand and study lead marketers and CMOs across industries. My concern, after meeting well over 300 leaders, is marketing is lacking influence and at some companies is considered “damaged goods”.

How do we fix it? The question I hope to answer over the coming months. There are three areas of concern, which I believe highlight the main issues.

1. Communications heavy, impact light

Historically, marketers and our peers in the executive ranks have been hyper-focused on communications – the latest ad, hot new website or now how many people “like” us on Facebook. We have lost substance and, in some cases, lack the will and determination to educate our organizations on what marketing is and is not. Traditional marketers seem to be less likely to hold the CMO post. In many of the companies I have spoken with, it is more likely that someone from sales, product or operations to be in the CMO role. The stinging reality… they are doing a better job. Why? Probably because they have a broader perspective on what is driving the business and how to harness it.

2. Losing influence, merging functions

Marketing leaders have lost influence. A recent IBM study of 1700 CMOs, show that less than half of the CMOs surveyed have much sway over key parts of the pricing process, and less than half have much impact on new product development or channel selection. Being a Marketing leader is such a herculean task of political gamesmanship to drive a cohesive strategy there is now wonder that the average tenure is still less than ½ that of the CEO. Despite these odds there is still hope as it seems a trend is growing in combining posts like Chief Commercial Officer or Chief Sales & Marketing Offer or Chief Marketing and E-commerce Officer. Although a great recognition on part of CEO and board that greater ownership is needed, they still lack the strategic focus on marketing in its potential long-term impact.

3. All-stars abandoning ship, lack of pride

My gravest concern is our very best are abandoning ship. The “best of the best” marketers that I have spoken to, rarely self-identify themselves as a marketer but rather opt for a “business leader”, “business executive”, “driver of the business”, etc. When I have asked do you consider yourself a marketer, their voice gets quiet and they say “no.” Despite the fear of being pegged a marketer, almost all agree that marketing is at the core of how they approach their jobs and that marketing with a big “M” is what more organizations desperately need.

Depressed yet. There is hope.

We have to start thinking about what matters again. We need to learn from those we think of as magicians of the practice. At the heart of what marketers are trying to accomplish is meaningful differentiation and capturing uncontested demand. “Meaningful differentiation” is difference that matters and customers are willing to pay for. As for “uncontested demand”, this term comes from Blue Ocean strategy and is the whitespace source of new demand we all seek that allows our products and services to occupy a new space that satisfies a real need not previously addressed.

Let’s all get back to what matters, which should deliver the impact, influence and pride marketers are lacking today. Help save marketing!

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Michael Porter: Still got it!

University of North Carolina at Chapel Hill
Image by TimDan2 via Flickr

Recently, I attended a University of North Carolina lecture by Michael Porter, Harvard Business School professor, who has made many foundational contributions to the field of strategy.  You can download the slides from the presentation.

Some thoughts from the lecture that continue to apply in today’s landscape:

  • The worst error in strategy is to compete with rivals on the same dimensions — be unique.
  • The fundamental goal of a company is superior long-term return on investment (ROIC)
  • Setting unrealistic profitability or growth targets can undermine strategy

Five tests of a “real” strategy:

  • A unique value proposition compared to other organizations
  • A different, tailored value chain
  • Clear tradeoffs, and choosing what not to do
  • Activities in the value chain that fit together and reinforce each other
  • Strategic continuity with continual improvement in realization

The Bottom Line:

Porter made great points and for many in the audience it was a refresher on strategy 101. The main message at the very end of the lecture was strategy is very hard to develop, but execution is even harder. In organizations today, there are so many agendas largely driven by the dynamics of humans (a concept I reference as lust, fear and greed). As companies develop strategy to get through this hard time, please keep in mind the realities of execution to have a greater likelihood of success.

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