Thursday, November 13, 2008

The Business Prevention Department

The "Yeah, But's" Of The Corporate Bureaucracy

By David Miranda

You won't find it on any organizational chart, but it's there - the business prevention department.

It's prime objective is to champion attitudes that discourage the new and the innovative within the organization. They are "you can't get there from here" people. Chances are you have attended meetings with some members of this department. They are easily identified. They are most likely your boss or boss' boss or members of your peer group. They are the ones shaking their heads on your new idea after just seeing only the title slide. They normally begin their comments with "Yeah, but", as in, "Yeah, but, we tried that before"; or "Yeah, but, you don't understand".

The business preventionists come in all shapes and sizes, genders, ethnic groups, religious and political affiliation. They are good at what they do - resisting change.

Examples are many.

Take the IBM business preventionist who, after hearing a suggestion that "since we would be manufacturing millions of personal computers, we should also market our own operating system for it" replied, "Yeah, but, we don't do operating systems. We make computers. Let's get this guy, Gates, to do it."

Or how about the major television network executive who, after hearing a pitch for a 24 hour news channel replied "Yeah, but, who is going to watch news for 24 hours, Mr. Turner? I think this CNN idea is pie-in-the-sky."

Or the Barnes & Noble executive who, after hearing a pitch for selling books on the Internet said, "Yeah, but, I don't think you get it Mr. Bezos. People prefer to buy books in a real store. I am also not too crazy about the name, Amazon."

There's more. Newspapers could not see the threat of the likes of eBay and Craig's List. The music labels could not see the potential impact of Napster or the iPod. Microsoft missed the opportunity to be a Google, Yahoo!, MySpace, or YouTube. Blockbuster should have foreseen Netflix.

How about your organization? Is the business prevention department active? Here's a quiz:

  • Are new ideas encouraged in your organization?

  • Are they really? If so, what part of your marketing plan represents encouraging the new vs. reinforcing the status quo?

  • Do new ideas come from the bottom up, top down, or as the result of competitor's initiatives?

  • Is your company spending more time analyzing than doing?

  • Does your company pride itself more in doing things right or doing the right things?
In summary, today's currency is ideas. The suppression of ideas and innovation is terminal. Don't let the business prevention department succeed.

Defeat the "Yeah, but's".

Thursday, November 6, 2008

Key Marketing Metric - Understanding The Difference Between Displacement And Dilution

Unwise Discounting Can Reduce Profits And Market Share

By David Miranda

Revenue optimization, once known as yield management, is relatively new to marketing. It was developed first in the travel industry. The premise is that perishable inventory (airline seats, hotel rooms, rental cars, cruises) is directly and dynamically correlated to key factors such as time, supply, and demand. It is the primary reason that the price of an airline ticket varies so dramatically among passengers on the same flight. Some passengers booked well in advance to get the best fare, while others who had to book at the last minute paid the highest price.

Of course, this is not an exact science, but a sophisticated "guessing game" by the airline, hotel, car rental firm, or cruise line. The process requires huge amounts of data to be "crunched" to determine the number of seats, rooms, etc. to be offered at any given price. When demand is low, more inventory is offered at lower prices and vice versa.

Revenue optimization has now made its way into other sectors, but caution should prevail. Many times business utilizing the practice displace or dilute revenues, so it's important to know the distinction.

Displacement refers to selling at a low price during periods of high demand. This unwisely "displaces" higher revenue to competitors after the company, who sold out its inventory at the low price, cannot meet additional demand. The result is that the competitor benefits from higher margins. Example: A company decides to offer a product at a highly discounted price and sells out. Unfulfilled demand is forced to competitors who charge more for the same product realizing higher profits.

Dilution refers to unnecessarily discounting prices to customers who either have already or would pay a higher price. Example: A company has already sold products at a higher price, but the product is moving slowly, so the company decides to sell remaining inventory at a lower price. Dilution occurs when the customers who already paid the higher price now demands the discount afforded others. The result - dilution.

The lesson is clear. A company must first analyze the potential effects of discounting - will it dilute revenue already realized or will it displace higher margin business to competitors?

Before considering discounting, do the math!