A big issue when you’re stuck in a period of extreme uncertainty is how to take the next step forward. Kay Plantes in dealing with business model innovation brought up Tide’s experiment with Tide Basic, a product introduction with a reduced feature set and reduced price. Kay asks is that the right direction for a premium brand to go. For example Kay writes:
“It takes only one other equivalent competitor to be a commodity. When benefits are perceived as similar, price drives decisions. If you’re not lowest cost, become benefit differentiated.”
And:
“Price is not the endgame. Rather, consumer purchase decisions are based on value, which is the difference between perceived benefits and costs to acquire these benefits in the consumers’ mind.”
We’re outside trying to guess what the folks at P&G might be thinking, but (as I commented) the strategy brings up the sometimes inherent conflict between strategies such as “market share leader” and “highest quality product.”
I don’t know what the right answer here is for P&G, but the interesting thing is the EXPERIMENT. Given a change in attitude may be temporary or may be permanent (can take time to figure out which) you sometimes have to prepare for shifts that may fundamentally alter your strategy. Testing the impact of a low end brand extension might be the only way to know what it will do to your brand image. Being willing to kill that experiment if it doesn’t fit with your strategic vision is a leadership test.
Where can we find role models for such preparation? Bill Welter’s post at Adaptive Strategies on how the explorer Rould Amundsen dealt with the uncertain conditions of his quest to the South Pole fits here:
“So he focused on some things that remained true and important no matter what – weight and warmth. For example, while waiting for the “good” weather he spent time shaving down the sleds and wooden boxes to get them as light as possible.”
As much as I would like to say otherwise, price is always an issue that has to be balanced against the intrinsic value of your product. (You’re seldom going to find ways to save money that are a waist of time.) Sometimes it’s good to test the waters and see if the features you worked so hard on are really anything folks care about. In Tide’s case you could ask the question, can consumers differentiate between laundry that needs high end detergent vs basic? “What do I see for that extra 20%?”
Having diversity in thought and deed within your organization is an important element in avoiding hubris. Especially in times of uncertainty when your own voice can drown out other signals that could guide your companies way. Jim Stoop of Managing Leadership wrote in a recent post:
“The important and valuable forms of diversity needed by a business – and often most vigorously and successfully resisted – are those related to differences in personality, values, artistic or intellectual inclinations, trained skills, native ability, and even character traits such as energy, attentiveness, insularity or gregariousness.”
I think creative spirits in large organizations can relate to these thoughts. In pursuit of getting things done managers have a tendency to simplify and streamline. This is powerful stuff, but it can also steamroll over attitudes and creative thoughts that can offer important guidance. Group think can explain odd comments like ‘They didn’t have the right to exist in the Gatorade world’ or any thought that berates customers for just not getting it.
Sometimes we just need to turn our thinking upside down. Customers change. Tastes change. No mater what creative endeavor you are part of, the more rules for success are written in stone the more opportunity is knocking for the potential leader who can see things a different way. Artists and creative spirits know this intrinsically. It’s a thought process that comes naturally. If you don’t see this natural conflict between thought processes occurring in your organization, it could very well be a warning sign. Every business contains creative spirits – and there’s a good chance they might not be carrying around a paintbrush. The trick is to tap into that energy, that alternate thought process and harness it to strengthen the overall thinking of your organization.
The discussion of the Free paradigm is interesting to watch from this perspective. You have ‘true believers’ in the idea that all things digital will work towards free. An ‘old guard’ trying to deal with the fact that significant revenue streams have been filtered off or destroyed by technology. And many perspectives in-between. Taylor Davidson at Unstructured Ventures makes the argument that “Free isn’t a problem, Free is an opportunity,” which is the reverse of what many photographers and digitized managers are probably thinking. The discussion brought up my comment:
“To a certain extent it is the responsibility of the old guard to defend apparently outdated business tactics and milk them for cash flow. That’s why so often when there is a tech revolution only a few old guard players survive the transition.”
Are you milking a business model or building a new business?
There isn’t necessarily one right answer. The issue is making a decision and then optimizing towards that goal. Right and wrong is seldom decided during ideation. It is typically decided in bankruptcy court. On the other side of the Free debate coin, Mark Cuban is continuing and strengthening the debate that charging for content can work. (A proposition that Newscorp intends to test next year.)
Once again you see the tension between marketshare, profitshare and quality driving different opinions of how to drive business success. In times of uncertainty, sometimes fundamental questions can only be answered by making decisions, experimenting and seeing what works.
The Uncertainty Paradox Three business bloggers search for leadership, strategy and customer relationship insights and certainties in a world full of escalating uncertainties.
- Bill Welter’s Adaptive Strategies blog
- Kay Plantes Business Model Innovations Blog
- Fred Schlegel (You’re already here!)
Join the continuing conversation at each of our blogs as we explore the implications of the uncertainty paradox.
Fred, great post as usual, making us think about possibilities instead of problems. It occurs to me that Twitter is a fine example of a non-intuitive business model that wouldn’t pass the “what if?” test at many firms.
What if we created a network that limited people to 140 characters per message, built it up to 4 or 5 million users and sold it for $1 billion?
Now, all this hasn’t happened yet, but the concept of Twitter sounded nuts a couple years ago and is still condemned as nuts by people in business who could actually prosper by using it!
I could give you 20 reasons why Twitter is a stupid business model and could never work – and I’ll bet I could win that argument on theoretical grounds against even some Twitter experts.
So, what I suppose I’m leading up to is the notion that success or failure in business is not always rational. Just because something doesn’t make sense doesn’t mean it won’t work. That’s why we need to experiment.
.-= Brad Shorr´s last blog ..Shakespearean SEO and Web Content Tips =-.
Fred, I love the discussion and the process of exploring it in concert with a group. It will be interesting to see where the discussions take us and the viewpoints that emerge. I am not sure at this point whether to declare P&G brilliant or completely stupid. At first blush, I believe as a consumer I would be more impressed with a brand that sought permanent ways to become more efficient (without killing local jobs) and passing on the savings to consumers. When it comes to a commodity like laundry detergent, I believe many choose the brand that does the job for basic laundry needs. For non-basic needs, you are likely choosing specialized cleaning methods or tools. If Tide Basic cleans just as well why would I ever buy the higher priced brand again? I have never been a fan of price driven marketing in good or bad times believing it to be incredibly short sighted. Do you want customers to choose you for price or value? If you win on price, you can lose on price too.
.-= Karen Swim´s last blog ..Painting by Numbers =-.
Hi Brad, It’s funny, in interviews with some of the smartest innovators I tend to see a real element of humility. They are rightfully proud of their accomplishments but realize that the fact customers bought into their vision included elements of luck and unpredictable momentum. Twitter is a great example of a product that still has a lot of folks scratching their heads – And even if it is the perfect idea for a business the fact that it has exploded and the open source competitors seem to be languishing would be hard to predict.
Sometimes the key to a great opportunity is that a lot of folks don’t think it will work. That reduces early competitive pressure and actually gives you time to make it work. Given the number of times folks have seen the Fail Whale from Twitter that certainly seems to have helped in this case… Great addition as always Brad, Thank you.
Fred, I love how deeply you think and your challenge to leadership. Oftentimes it’s important to separate people who are working on the old and new business, not just due to knowledge, but also to keep the new people freed of the old paradigms. Whirlpool dramatically expanded its scope through a “new company” approach. The on-line leader for Lands End was given free reign to get his part of the business started without any requirement to fit into the rest of the company and the end result was a best-in-class on-line retail channel. I know from former employees that the leaders of “Lunchables” had to fight tooth and nail to steal resources from traditional businesses of Oscar Mayers and its a good thing that they did as Lunchables became the growth platform.
Some of the tension between old and new is good. It only becomes bad when the leaders weigh in only on the side of old.
Have a great day, Kay
.-= kay plantes´s last blog ..The Uncertain Consumer =-.
Hi Karen, I’ve been enjoying and learning quite a bit as well. The combination of great additions in the comments from folks like yourself and the way Bill and Kay are helping push the story forward really gets my brain juices flowing. Good way to push through the dog days of August 🙂
Kay is very forceful in her warnings about price competition, just as you are indicating here. The key point both you and Kay identify is simply the question of whether folks will pay to see the difference between Tide basic and Tide (premium?). Given my complete ineptitude with laundry I’m not a real good judge of what size the premium category might be.
Years ago in the transition from powdered to liquid P&G evidently faced a similar challenge. Powder was evidently a more difficult business to enter than liquid due to the larger capital investments in plant and machinery. Therefore, it was a business P&G wanted to protect (because they had a price advantage) and so for a while (I’m hoping my memory isn’t failing me here, if anyone knows better please add!) defended the superiority of powder over liquid. It was a loosing battle due to aspects of liquid people liked – and so they had to dive in and develop and defend the liquid category slowly killing off powder. Times change. What is an advantage today can be a disadvantage tomorrow. Great input Karen! Thank you.
I like your point on the limits of streamlining. One of the ways our group originally streamlined, while expanding, was carving out a thin slice of the budget explicitly for innovation / R&D. This helped expand our portfolio, while the rest of our programs were tuned and pruned. This also helped folks have a formal way to think up the next big thing if they wanted to jump on it. It was simple but effective. It was an AND portfolio mindset.
.-= J.D. Meier´s last blog ..Poor Communication isn’t the Source of Most Conflicts =-.
Interesting you should bring up the idea of separating businesses. Saw it done (and was part of it on occasion) at Hallmark quite a bit and at other organizations I’ve done work for since. In some cases I think there was almost an out of sight out of mind mentality that let the divisions go off and accomplish quickly what had in some cases had been sitting on the back burner. This might be an interesting thing to follow up on – the dynamics of separation when existing models are facing uncertainty.
Hi J.D., I like that approach. When the budget was sliced out did that also create changes in management structure or did you end up splitting up the day? — Part on refining the current and part on inventing the new. Also was there a limit to how ‘far out’ the innovation could be?
“In times of uncertainty, sometimes fundamental questions can only be answered by making decisions, experimenting and seeing what works.”
This capability is one larger organizations will need to develop better to compete. Small organizations are known for their nimbleness because their org structure, embedded incentives and “visibility” of efforts enable people to make decisions, take chances and test: and most importantly, recover from failure. The disincentives to failure in large organizations hamper many companies from dealing with uncertainty, because it simply doesn’t pay for individuals to take risks, test and experiment.
But this need not be the case. I’m hoping large companies learn (i.e. enough people in large companies learn to change the culture) so that talented, creative spirits can leverage their talents in environments with the resources to match.
Consider that a naive hope from a large company expat 🙂
.-= Taylor Davidson´s last blog ..SXSW 2010 Panel Idea: Personal APIs: Better Living Through Collaboration =-.
Hi Taylor, I’ve been trying to understand why the penalties for failure are worse at larger organizations than they are at small. I’ve worked in both and I have the same feeling but can’t quite decide if that was just the way I perceived it vs real ‘danger.’ I mean, in the end fired is fired. You mention how at larger organizations it doesn’t pay to take risks and so maybe the the downside looks bigger because benefiting from the upside is so unlikely. Again something for mulling. I don’t think the hope is naive at all, but may be limited to parts of an organization. That’s how I’ve experienced it in the past at least. Thank you for adding to the conversation!