Whoever Heard of Alexander the Mediocre?
The future for South Africa will be different, so prepare now!
The construction industry in the UK is currently booming, albeit not quite as strongly as in South Africa. I recently asked one of sixty Managing Directors at their conference what accounted for his 185 percent growth in net profits. His reply? “We had a mild winter!!” So I asked him how much of his net profits came from market growth. He didn’t know. Then I asked him how much came from market share growth – but obviously, if he couldn’t answer the first question, he couldn’t answer that. Then I asked him how much came from net price increases. He didn’t know. Then I asked him how much came from productivity improvements. He didn’t know…..etc etc. By now the other 59 Managing Directors were sitting bolt upright, hoping that this odious little toad of a professor (me!) wouldn’t ask any of them such embarrassing questions. There is a grossly mistaken view that in high growth markets, marketing somehow doesn’t matter. But even a cursory glance at the fortunes of American and European companies over the past twenty years will reveal that most of them have gone bankrupt since the heady days of growth ended. Of Tom Peters’ 43 excellent companies (In Search of Excellence), only six were left only eight years later.
My conclusion? The good thing about not practising professional marketing is that failure comes as a complete surprise and is not preceded by a long period of worry and depression!
The heartbeat of professional marketing has always been market segmentation. The reason no one has heard of Alexander the Mediocre is that, unlike Alexander the Great, he was mediocre. So what makes anyone think that mediocre products are going to reap anything but mediocre results? Going a stage further, what sort of company would make a commodity out of bread, fertilizer, glass, paper, chlorine, potatoes or mobile phones?
Well, just observe consumers buying potatoes in Marks and Spencer in the UK at a premium price. Then ask whether anyone can tell the difference between Castrol GTX, Alfa Laval Steel, SKF bearings, Intel microprocessors and respective competitors. Yet these great companies are able to charge premium prices and have massive global market shares.
Gurus like Tom Peters, Philip Kotler, the chairman of Unilever and the like agree that the key elements of World Class Marketing are:
• A profound understanding of the market place
• Proper market segmentation
• Powerful differentiation, positioning and branding
• Integrated marketing strategies
The order is significant. Even now, many companies in South Africa are messing about with their brands without really understanding their market, how it is segmented, or where they are positioned.
Companies frequently confuse target markets with products – pensions or mainframe computers for example – this coupled with a lack of knowledge about the sources of differential advantage against each segment, signals trouble.
Many companies in South Africa pride themselves on their market segmentation even though these so called “segments” are in fact sectors, which is a common misconception. Everyone with a marketing qualification knows that a segment is a group of customers with the same or similar needs and that there are many different purchase combinations within and across sectors.
But the gravest mistake of all is a priori segmentation. Most books incorrectly state that there are several bases for segmentation, such as socio-economics, demographics, geo-demographics and the like. But this misses the point totally. For example, Boy George and the Archbishop of Canterbury are both As, but they don’t behave the same! (Apart from wearing dresses and singing a lot). Nor do all 18 to 24 year old women behave the same! (demographics). Nor does everyone in my street (geo-demographics) behave the same! All goods and services are made, distributed and used and the purchase combinations that result make up an actual market, so the task is to understand market structure, how the market works and what these different purchase combinations (segments) are.
So, the starting point in market segmentation is correct market definition which is crucial for measuring market size, growth and share, identifying relevant competitors and formulating strategies to deliver differential advantage. Few companies give sufficient attention to correct market definition and few can draw an accurate market map and therefore have little chance of doing anything remotely resembling correct market segmentation at the key influence points or junctions on the map.
At each if these junctions, segmentation is not only possible, but crucial. The methodology for market segmentation is explained in the second edition of “Market Segmentation: how to do it; how to profit from it” by Malcolm McDonald and Ian Dunbar (2nd Edition, Butterworth-Heinemann, Oxford 2005).
Take ICI Fertilizers, which made severe losses in the late 1980s. Indeed, in this overcrowded market, no fertilizer company anywhere in the world was making any profit. ICI Fertilizers went through our market segmentation process and discovered seven segments of farmers, only one of which was truly price-sensitive. One segment consisted of technologically-advanced farmers; another consisted of farmers who were more conscious of the appearance their crops; another was loyal to the Merchant (the intermediary) and so on. But no one in the world had bothered to uncover their real needs and motivation, consequently, the same offer was being made to all farmers and because no supplier understood them, they bought on price alone. So ICI matched its products and its communications to the known needs of these farmers and quickly became the only profitable fertilizer company in the world and the most profitable subsidiary of ICI.
It is also blindingly obvious that product development, positioning and branding follow on from proper market definition and segmentation. They certainly don’t preceed them!
This heartening story about a competitor in a so-called “commodity” market may make all those companies in South Africa currently enjoying the regional growth to prepare now for the inevitable slow down that will eventually occur.
Learn the lessons from all those smug, complacent organisations in the West who failed to embrace the marketing concept.
Malcolm, until recently, Professor of Marketing and Deputy Director Cranfield School of Management with special responsibility for E-Business, is a graduate in English Language and Literature from Oxford University, in Business Studies from Bradford University Management Centre, and has a PhD from Cranfield University. He also has an honorary Doctorate from Bradford University. He has extensive industrial experience, including a number of years as Marketing Director of Canada Dry.
He is Chairman of six companies and spends much of his time working with the operating boards of the world’s biggest multinational companies, such as IBM, Xerox, BP and the like, in most countries in the world, including Japan, USA, Europe, South America, ASEAN and Australasia.
He has written 41 books, including the best seller “Marketing Plans; how to prepare them; how to use them” and many of his papers have been published.
His current interests centre around the use of information technology in advanced marketing processes and global best practice key account management.