Make Your Best Customers Even Better

Just over a year ago, managers at Kraft believed that their Velveeta brand had only moderate growth prospects. With the consumer migration toward natural and organic products, sales of Velveeta—a processed, unrefrigerated “cheese food”—had languished. The customers who did buy it typically used it once or twice a year, usually to make a party dip. But as we began working with Kraft and analyzing supermarket scanner and consumer panel data, we found a hard-core group of Velveeta fans. They constituted 10% of buyers but accounted for 30% to 40% of revenue and more than 50% of profits. In focus groups, these buyers—whom we dubbed superconsumers—said that they think of Velveeta as superior cheese. They love the way it melts smoothly and easily, and they have myriad uses for it, ones that range far beyond dips (one person even claimed to use a little when making fudge). After we finished questioning the superconsumers, they traded recipes, e-mails, and phone numbers with one another—building friendships around their shared passion for Velveeta.

To restart Velveeta’s growth, Kraft decided to focus on these superconsumers, a group whose size we estimated at 2.4 million. The product team had recently launched refrigerated Velveeta slices, for use on burgers and sandwiches. It had also introduced refrigerated shredded Velveeta, for use in casseroles. Both launches had been surprisingly strong, but they now took on much more importance in light of the superconsumer strategy. Some retail partners began moving the product to the refrigerated dairy aisle, where products have a much higher rate of sales. The strategy inspired a pipeline of innovations to meet new uses. Kraft also began gathering customers’ recipes and finding ways to circulate them among the faithful. “The previous thinking was that the quickest, easiest path to growth was to identify light users or lapsed users,” Greg Gallagher, the marketing director at Kraft Foods, recalls. “But when we talked to superconsumers, we learned that in fact they wanted to use Velveeta more—they were starving for it.” The new product launches have generated more than $100 million in sales. Just as important, managers believe they have found a viable growth strategy for the first time in years.

Every marketer is familiar with the Pareto principle. Known colloquially as the 80/20 rule, it suggests that one-fifth of a product’s buyers are responsible for four-fifths of sales. A similar effect applies to superconsumers. Using Nielsen supermarket scanner data, we analyzed the top 124 consumer packaged goods categories and found that on average, superconsumers represent 10% of a category’s customers but account for 30% to 70% of sales and an even higher share of profits. Most managers take care to offer VIP treatment to these big spenders in order to ensure their continued loyalty, but few make them a focus of growth plans. They assume that these customers are already maxed out and can’t be persuaded to buy more—or they believe other myths about them. In our work with CPG companies, however, we routinely see brands that are able to grow sales by finding new ways to appeal to these customers. And the phenomenon isn’t limited to CPG categories: We have seen companies successfully execute superconsumer strategies in industries as wide-ranging as apparel, consumer durables, and financial services.

Reaping Benefits Beyond Sales
It’s important to distinguish superconsumers from other segments of buyers. They aren’t quite the same as “heavy users”—a product’s highest-volume buyers, in traditional marketing terms. Heavy users are defined simply by the quantity of their purchases. Superconsumers are defined by both economics and attitude: They are a subset of heavy users who are highly engaged with a category and a brand. They are especially interested in innovative uses for the product and in new variations on it. They aren’t particularly price sensitive. Superconsumers tend to have more occasions and “jobs” for a product. Think about hot dogs: While many consumers view them primarily as a food for backyard barbecues, superconsumers see them as an ideal fast meal or an after-school snack.

In our experience, many managers are quick to dismiss the concept of superconsumers or to regard it with skepticism. But as companies build up their analytic capabilities, they are becoming increasingly adept at identifying and engaging these consumers. When they do, they not only find that these shoppers have good reasons for buying so much, but also often discover a hidden appetite to buy more—even in the most unlikely product categories.

Staplers are a prime example. Most people have just a single stapler—or maybe two, one at home and one in the office. But in our work with an office supply company, we identified stapler superconsumers, who own eight staplers each, on average. These consumers don’t do more stapling than other people. Their stapler buying is related to a need to be highly organized: They believe that the presentation of the papers they staple together matters as much as what is on the papers. So they want just the right stapler for each stapling occasion. They keep different sizes and shapes in various places—their offices, their kitchens, their purses, their cars. Absent these findings, common sense might suggest that there would be little ROI in trying to sell someone who owns eight staplers a ninth or a 10th one. But the analysis proves that selling those additional staplers to superconsumers is a smarter growth strategy than simply selling replacements for broken or lost staplers to “normal” consumers.

Companies that focus on superconsumers can realize benefits far beyond an opportunity to drive sales growth. Because superconsumers are already buying your products, it’s easy to reach them. This means that you can dramatically increase the efficiency of your advertising and promotions. Instead of trying to activate lapsed users through expensive mass-market campaigns or paying large sums to deliver coupons to customers who haven’t bought your product in months (and probably won’t buy it now), you can focus your efforts on a narrow slice of your customer base. Direct and digital marketing are often much more effective with superconsumers than with others. That effectiveness can be especially valuable to large CPG companies, some of which spend billions of dollars a year on advertising—and for which a 1% increase in the efficiency of ad spending can therefore be worth tens of millions of dollars.

Many superconsumers are superb at offering insights that can drive product strategy. Because they are passionate about the category, they are an ideal audience for testing out new-product ideas—and in many cases, they themselves are the source of new ideas. Consider another Kraft brand, Breakstone’s sour cream. Shannon Lester, a Kraft brand manager, and his team discovered that many of its superconsumers were blending it with Greek yogurt to create something that tasted like sour cream but had about half the fat and cholesterol and twice the protein and calcium. Breakstone’s had once come up with a similar combination, but the mixture had failed to gain traction even inside the company. After Kraft embraced the superconsumer strategy, however, it retested the product, this time targeting its superconsumers, who loved it. Moreover, many of them offered input that helped Kraft optimize the product, and their insights about presentation helped it gain mass appeal. Demand for Breakstone’s Greek Style sour cream grew so rapidly that the product was available in 60% of U.S. grocery stores within months of the retest—astonishing speed for the success of a new product.
The most important thing we’ve learned in our work with companies that have decided to focus on superconsumers is that the new strategy can become a rallying cry for an organization—particularly one that has been marketing an old, slow-growing product perceived as unexciting. Like many of the best strategies, it is simple to explain, it appeals to logic, and it is easy to back up with data. “To be honest, I was a nonbeliever at first,” says Cannon Koo, the director of analytics at Kraft Foods. “I thought, How are these consumers any different from heavy users? But as we did more and more research, we began uncovering more and more insights that were quite different from what we were used to seeing from heavy users.” Today the Velveeta team uses the superconsumer strategy to plan its media buying, trade promotions, and new-product lines. The brand’s general manager says that in his nine years at the company, he’s never seen a more tightly integrated brand plan.

The superconsumer phenomenon points to a virtuous circle: Often companies can do well by showing more love to the customers who love them the most.

 

MBA Students: Choose Your First Job Wisely

The life of an MBA student is demanding. To manage the classwork and interviewing process today is much harder than it was when I was an MBA student. Outside of class, students must spend more time networking and preparing for the interview gauntlet to live up to the expectations of recruiters and compete effectively against impressive peers. You can have dozens of smart, talented, exceptional students vying for one or two coveted positions. It’s simply not easy.

However, what I’m noticing is that with all of the preparation to get the offer(s), there isn’t much time or energy left to think through what these first jobs mean to a 40 year career. Often times, when I ask students where they want to work, the response is: “On a brand I love”. I also find a number of students who want to pursue the Mark Zuckerberg career path and start their own company or work for a small start-up.

As somebody who did neither of these things, I want to provide a different perspective on how to consider job opportunities. This is obviously biased by my experience, and I recognize there are many paths to success and happiness, but I do believe these are important aspects to at least consider before rejecting a Blue Chip company opportunity. What follows is an open letter to students who are grappling over which job offer to take.

AN OPEN LETTER TO MBA STUDENTS
If I may, I’d like to provide you with some thoughts about this opportunity. I’m going to give you some perspective on how these early decisions will impact your entire life – thoughts you may not have had. These are considerations I didn’t make when I accepted my internship offer at Procter and Gamble in the 80’s. I got lucky and had the right mentor, Chris Puto, who pushed me in the right direction. He convinced me to turn down exciting offers (I turned down two internship opportunities to work at Ogilvy and Mather on Microsoft – the Google of the late 80s – and Mattel – the fun brand at the time) to take a “corporate” and less exciting job at Procter and Gamble, where I spent all summer working on Dash, the world’s smallest and most insignificant laundry detergent brand. On day one, my boss (Rick Thompson – a great coach and mentor) asked me what laundry detergent I used and I said “I don’t know”. That’s how excited I was to work on laundry detergent. But here is some perspective:

1) Your work “Brand” is enduring. Procter and Gamble was and still is considered a top tier marketing company. Just like Harvard and Darden are “ranked” higher than many other schools and have greater prestige, companies are also ranked. However, while your educational “brand” influences early job opportunities, your work “brand” will dominate over the course of your career. It endures. When I talk to executive recruiters who place C-level executives in different roles, they care about the “training” and “experience” a job candidate has had, particularly in the formative part of their career. Working at a great company (I mean businesses that are successful, that have a pedigree for being leaders in their industry over time and that have a reputation for creating best-in-class businesspeople) is a brand stamp that will follow you for the next 40 years. It can open doors that otherwise would be shut. I learned this when, during my second year of the MBA program, every company I wanted to interview with wanted to interview me. Why? Because I had P&G on my resume.

2) As a result, your internship and full-time employment after the MBA program have “annuity-like” benefits. In a review of C-level marketing job specs I did, 70% of C-level marketing jobs list as a requirement that the candidate have “P&L / Brand Management experience”. 19% of the job specs overtly stated that the candidate should have had prior “Blue Chip” company experience. In reviewing the work history of over 100 C-level marketers, most had a “Blue Chip” company early in their background. These early experiences provide you with greater opportunities later to pursue whatever path you choose. I have many Procter friends who have become CMOs, CEOs, entrepreneurs, and executive recruiters, etc. Early brand stamps (great companies) provide a broader and stronger launching pad from which to consider later opportunities.

Family business needs equality not hierarchy: Tim Slattery of Slattery Auctions

The most critical factor as to whether a family business functions effectively in the present and whether it succeeds into the future is the approach taken towards succession planning and managing family conflict.

Those who work in a family business are acutely aware of the heightened potential for conflict and what this may mean for family harmony and the business’s success, especially when the emotionally charged issue of succession planning is raised.

While every family business is as unique as every family, it’s inevitable that one day the owner will exit the business, whether it’s through sale or succession to the next generation.

Growing up as the fifth child in a family of six children, I was never interested in joining the business founded by my father. In fact, only my youngest brother wanted to take on the challenge. Through a series of events three siblings, including me, now work in the business.

My career started initially as a graduate lawyer at the law firm Freehills, where I worked on some of Australia’s biggest corporate transactions. I was the last of the brothers to join the family business and the decision to leave law took a massive ego check and level of personal development. My two brothers and I have since bought the business from my parents in 2012 and it was the best decision I ever made.

Among a large number of factors that might affect a successful transition is the willingness of the founder or existing head to hand over control of the business, the ambition and desire of the new generation to make their mark, and – where there is more than one potential successor – the competing interests of those individuals seeking to take the helm.

The biggest gift we had during the succession process was that our parents have been happy to be less hands-on in the business while maintaining a mentoring role. We value our father’s continuing involvement to share his wisdom and industry knowledge while allowing us to explore new ideas and opportunities.

Managing family relationships can be challenging at the best of times. Trying to do this in a business context and through a matrix of varying rivalries and emotions including love, pride and loyalty can be much more complicated. Introduce a new set of dynamics with spouses and in-laws and another level of challenges arise.

A key step in our succession was to have a family meeting to propose the sale with all siblings and, most importantly, all spouses. It was critical that the purchase was on market terms based on an independent valuation with no favour shown. It was important to address the distasteful topic of inheritance and how this would be managed.

There were a number of new issues to be addressed on the aftermath of our successful transition. For us, it was important that all siblings are equal in the business in terms of responsibility, work load, rewards and outcomes.

At a PwC seminar we learnt that family businesses have a unique perspective on how business should be run and the hierarchical model advocated in most MBA programs can be a major stalling factor due to the power of family dysfunction.

We manage conflict by addressing it with total honesty and questioning ourselves whether a disagreement is worth creating a conflict. Where a stalemate arises we have an agreed deadlock mechanism, which turns to our father.

You must also operate in a mindset that recognises the value offered by your family in the business and never allow your ego or greed to take hold.

Ten tips for managing conflict and planning succession

No one set of rules can apply to all family businesses. However, here are some lessons we have found useful:

1. Always be honest about everything.

2. Don’t let issues fester. A big issue is a small issue that has been left unaddressed.

3. Implement a deadlock mechanism so your business is never without direction and abide by it.

4. The spouses are key stakeholders and are as important as the members of the business. Do not neglect their thoughts or feelings.

5. Address the distasteful topics, such as inheritance, as these are the things most likely to become an issue after the passing of the business founder.

6. Strive for equality between the siblings: equal work, equal outcomes, equal responsibility.

7. Check your ego and recognise the value all family members offer rather than focusing on your own contribution.

8. Separate work life and family life and do not mix the two.

9. A family business will be richer for having family members who have experienced work and life outside the business.

10. Greed is the start of the end of the business.

One Retailer’s Approach to Superconsumers

Packaged goods companies aren’t the only ones that can profit from added attention to superconsumers. Several years ago we worked with a U.S. hardware store chain (unnamed for reasons of client confidentiality) whose sales were lagging. Its superconsumers were do-it-yourselfers making low-cost home improvements, such as replacing light fixtures. In analyzing how to increase sales among them, managers focused on paint—a high-margin product that is part of many DIY projects, an easy way to spruce up a space, and a purchase for which customers appreciate the kind of advice and personal service that’s hard to get at a big-box store.

The retailer reworked its paint merchandising and marketing to be more inspiring. For example, it created “idea cards” and began offering sample jars so that customers could try out colors at home for little cost. These initiatives succeeded, and not just among superconsumers: Paint sales rose 14% the following year.

How to Select the Right Name for Your New Business

Name for new business

Does the name of a business affect that business’s success? In most cases, absolutely it does. So how do you name a business?
While the right name can make your business popular within a short time, the wrong one can doom your prospects. The right name can create a unique business identity, but the wrong one can mar it, along with your chances of success.
Do you go with something descriptive or something creative? Do you include a location in the name? Do you decide this on your own or get expert help? You need to find answers to a number of questions before you make a final decision to name a business.
How to Name a Business
Expert Advice: You May Need It
It’s not easy to name a business. The name has to convey the right message and generate interest. Trademark issues must be considered and most importantly, you need to develop the right marketing strategy for the name you’ve chosen. If this is not particularly your field of expertise, hiring an expert may make sense.
If you’re in a sector where the name of your new venture is sure to affect its success, you need to involve an expert in the selection process. But don’t depend blindly on the expert. Instead, work with them to find the best name for your business.
Professional naming firms know what works and what doesn’t. You may come up with a name that seems good to you, however, they have the expertise to identify a name’s potential and evaluate its possibilities. They also know how to prevent legal hassles over trademarks.
Don’t think that hiring a professional is just a waste of money. The identity of your business depends on its name, at least initially. When you name a business, mistakes can lead to long term consequences that are costly in terms of time and money.
Informative or Abstract: Which Should You Choose?
Descriptive or creative? Real words or fabricated ones? Location-based or general? The questions are numerous. However, all of them are intertwined. Everything boils down to the basics – whether you need to choose a name that informs people about your business or a name that generates people’s interest, making them want to find out more.
There are no hard and fast rules to name a business. What works for one business may not work for another. This makes it even more important to think hard about the type of name that will be good for your endeavor.
You also need to decide whether to include a location in the name. While a location may define the proximity of your business for your target customers, it may become a problem if you expand your business to other locations later on. Just because your new business is small today doesn’t mean it will remain so in the future. The ideal name for your business should be the one that conveys the uniqueness of what you bring to your customers. But, the ideal may not always work for every business.
Here are a few tips to name a business that do work for all businesses:
Pay attention to what your clients want; not to what you want.
Don’t choose a long name with difficult words.
Use words that evoke familiarity.
Don’t use puns, as they may not be understood.
Incorporate your business before you use the “Inc.” in the name.
Professional firms often use a simple trick to come up with business names—morphemes. These small, meaningful units of words provide a good base for an interesting, yet informative business name.
Trademark Issues: How to Stay Safe
Trademark infringement may lead to legal battles where you lose precious time and money. Therefore, it’s important that you research the names you think will be suitable for your business. You may also find it helpful to hire a trademark attorney to help you avoid legal issues.
Don’t take trademark issues lightly: These conflicts can completely annihilate your financial resources. An ounce of legal prevention is worth a pound of cure in terms of time and money.
And the Winner Is
Now that you have three to five names as contenders, whether you came up with them yourself or had experts contribute them, it’s time to finally pick one. Here are a few ideas that may help you find the best one for your business:
Ask yourself: Does the name convey the company image you want to create?
Ask your target consumers : Does the name seem interesting? (You can do this with a market survey.)
Ask your marketing people: Does the name have potential?
The last decision rests with you: Follow your intuition, go with the expert recommendation.
Whatever your method to name a business, make sure you start to market the name as soon as you have decided to use it.

5 Tips for a Great Business Plan

The simple act of writing down your idea and outlining how the business will operate can be helpful to ensure that you communicate your vision and that everyone is on the same page. It also helps you benchmark and check your progress as the company grows.

A business plan is crucial to get support for your vision because it shows that you have thought through an idea clearly and aren’t just winging it.

For example, I once wrote an entire business plan with a business partner on paper towels. We recognized an opportunity, but had to write it down and test the idea to make sure it would work (we didn’t have any paper handy, although that didn’t stop us). The plan was just for us, but we still had had to see if the vision, the financials, and the strategy were sound. We created that company and it went on to gross millions of dollars a month. In other words, your business plan doesn’t have to be some manicured document in order to make it successful.

Now with this example keep in mind that I didn’t need to raise capital for this company and I had existing expertise in this industry. I’m certainly not advocating people draft business plans on paper towels! However, even with capital and expertise, it was still important to write out our idea and create a business plan. Otherwise, the company could have lacked direction and structure.

Your business plan should be clear and provide a roadmap for your company. Without a plan, you’ll find it more difficult to communicate your vision and see a path to growth.

Here are five other business plan writing tips I’ve found useful during my career:

Get rid of the fluff: You should always be as concise as possible and remove any filler language. Even if it sounds nice, fluff gets you nowhere and wastes space. Plus, no investors want to read a long business plan. Get to the point quickly.
Be realistic: You should be honest with yourself in your business plan, which is why it’s important to consider challenges and opportunities. If you’ve got a strong idea, let it stand on its merit.
Show you’re conservative: Everyone says they’re “conservative” in their business plans, but most aren’t. You should be. Use examples to demonstrate that you’re conservative in your approach and projections.
Visuals are good: Whenever possible, and without overdoing it, use visuals in your business plan. Graphs, charts, and images can help bring your concept to life. Plus, it breaks up the text and helps a plan flow better.
Be creative: Include a creative element in your business plan so you stand out and grab someone’s attention. You can use templates, but don’t look identical to a template. Do something unique to make the plan yours.

Why the Steve Jobs Approach Pays Off

During his tenure at Apple, Steve Jobs championed a product-focused strategy that combined hardware, software, and services in a bundle for customers. This holistic approach to the Apple suite of products is perhaps the most successful example of diversification into related offerings. The strategy helped Apple both develop an extremely loyal customer base and top Fortune’s list of the most admired companies in the world for the past five years.

Now, Apple’s competitors are employing similar strategies. Google’s recent acquisition of Motorola Mobility has been widely viewed as a way for Google to employ a bundling strategy involving phones, tablets, and computers. Oracle’s CEO, Larry Ellison, has articulated his company’s new strategy as selling “a lot of separate pieces that our customers used to buy as components.” Even Apple’s archrival, Microsoft, which has traditionally dominated the personal computer field by concentrating on software, has now integrated across-the-board elements into its Surface tablet.

The big question is this: Can the Steve Jobs approach, which has proven successful when targeting customers, be extended to the business-to-business context? The authors of this paper, the first to empirically test this question, answer with an emphatic yes. The clients of IT firms report increased levels of satisfaction and loyalty after buying bundles of related products and services, which translates to better evaluations of the vendors and a higher likelihood of repeat purchases.

The authors analyzed a data set of more than 36,000 IT vendor ratings issued by managers and executives at leading firms over a four-year period. They focused on the relationship between the type of IT products and services offered together in bundles and their effect on clients’ satisfaction and loyalty. The participants represented companies from a variety of industries, and they answered a range of questions about their experiences with the vendors.

The analysis showed that customers whose company had bought a suite of hardware, software, and services were significantly more satisfied with their purchase than customers whose company had purchased any single piece of the technology bundle. Customer satisfaction was lowest when buyers obtained only services, suggesting that technology assistance or consulting activities mean little when not accompanied by hardware and software.

Customer satisfaction was also higher when clients bought “adjacent” layers of the technology suite, such as both hardware and software, or both software and services. Purchase of more widely dispersed elements, such as hardware and services together, occurred less frequently and did not significantly boost satisfaction. This underlies how important it is for IT firms to market their integrated suites hierarchically—emphasizing to prospective clients how each layer of the stack builds on the one above or below it.

B2B firms, therefore, should consider expanding their portfolios to include products or services that are closely related. As the authors note, acquisitions, mergers, and partnerships have long paved the typical, though arduous, route for a firm trying to expand its products and services. But the increasing modularity of product components can help firms integrate different products and services without having to go through the hassle of merging with or buying another company, especially in the IT field. Open source software systems such as Linux, Moodle, and Sugar CRM, along with cloud-based hosting and delivery systems such as Amazon Web Services and Rackspace, “dramatically increase the capabilities of IT vendors to deliver IT application solutions that are scalable and highly reliable,” the authors write.