Tag Archives: lean marketing

Lean (Super) Marketing – Price & Promotion

Quiz question : Can (beer) you (nappies) think of (coffee) products (biscuits) that are (cereals) always (cordial squash) on price promotion in one (pet food) supermarket (toothpaste) chain or (deodorant) another?

Today it’s being touted in the Telegraph today that Tesco will start a price war by reducing prices.

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8780284/Tesco-to-start-supermarket-price-war.html

The article also takes the view “Unlike most “price war” announcements, analysts expect this to materially alter the profits that Tesco makes in Britain”.

How could it be?  how will it affect profits?

Well the article talks about fewer buy-one-get-one free promotions and more low, round prices.

 Imagine you’re a supplier and a supermarket offers you the chance to take part in a “bogof” promotion.  Let’s look at the simple mechanics of these promotions;

You are selling at a rate of “packs of product per day”, [SKU’s to use the jargon] suddenly this rate can start to rise to 4, 6, 8 times that amount. (remember you are on bogof, so doubling of sales rate is a minimum!)

So where do you get all the spare stock from? you make it in advance of course on overtime.

You store the finished goods in additional warehouses ready to go out but remember you need bigger warehouses. You’re going to sell 4,6 times what you normally sell.

Oh and you’ll need to store the increased amount of raw materials as well.

You’ll have to try to forecast  the demand across your different flavours and pack ranges e.g. if you only offer the 500 gram pack on bogof what happens to the 1kg pack sales? 

As the promotion runs, you may well need to run production for longer hours and incur overtime costs.

And the supermarket, well they need more space to put your products out there, they need more transport to get the products out, so you see this “free” promotion seems to be increasing the costs to every one but us, right?

The consumer in the meantime is building a nice little stock of “free” goods at their end of your product, which leads to two behaviours. 

  1. they don’t buy your (or your competitors) product for a while, they’ve got a stock at home.
  2. they end up throwing it out and they didn’t need that extra pack but hey it was free.

So what happens to your business at the end of the promotion?

Demand drops back and probably to less than before, the customers have got spare stock in their cupboards right?

Another competitor starts a promotion in the supermarket, be it another brand or the supermarket own label.

So now you have production lines with not enough to do, so what do you do? you go to another supermarket and offer a price promotion, yeah!

Here’s the quiz question again : Can (beer) you (nappies) think of (coffee) products (biscuits) that are (cereals) always (cordial squash) on price promotion in one (pet food) supermarket (toothpaste) chain or (deodorant) another?

I’m sure you can think of the brands.

So what might your accounting team say about this?

Well you’ve given products away for “free” and incurred additional overtime and storage costs, never mind the raw material you started with. So will they drive up the normal cost of the product to cover these costs and to make the “free products” less of an effect on your business? You can decide that.

The benefit of going to Every Day Low Prices is two-fold, in our opinion, based on Lean Management;

  1. The consumer only buys what they need and not any thing extra because it’s “free” – this is better for our food waste figures and our waist figures.
  2. The suppliers stop having to manage major swings in purchasing patterns, when in fact consumption is relatively stable. Do you really buy use toothpaste twice as fast because it was on BOGOF? So they get on with managing the costs in their business and can focus on reducing these.

So moving away from free products can have a major impact on the whole supply chain. It can reduce the costs and complexity of managing the chain and affects all of our waste [waists]. The reduction in costs can be passed onto the consumers but if you don’t pass all of it on, then your revenues may drop but your profit & margins can increase.

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Free Lean Management Training Course

From time to time, we offer free training via other organisations.  One such organisation we work with is Leeds, York & North Yorkshire Chamber of Commerce.

On the 25th March 2011, in Leeds, we’re offering a free 2 hour insight into Lean Management techniques. This is about how Lean can be applied across all departments in any organisation, so it isn’t limited to just manufacturing or profit facing bsuinesses.

So

  • if you work in IT, Finance, NHS, Public Sector, Service, Marketing or Manufacturing companies or
  • if your career means you are responsible for continuous improvement, process improvement, or training or
  • if you are faced with getting more out with the same or fewer resources

then this course will give you something to take away to use in improvement.

You can find all the details here LEAN MANAGEMENT TRAINING  COURSE

This session will show you how you can improve your business efficiency, by using tools and techniques developed in manufacturing and now proven within organisations, ranging from Tesco, Toyota, Zara, GE, NHS, Intel, Johnson & Johnson, Seyfarth Shaw (Law firm) through to Starbucks.

Lean manufacturing businesses found that more than 70% of their improvement projects lay not on the shop floor but in the offices and service based departments and so it has spread to these sectors. It will help to improve your business speed, capacity, cost control and quality whatever your sector or department.

If you’ve got any questions on this training then drop us a line.

Thanks

ResQ

BOGOF – it’s just not lean marketing

According to this story in The Times Tesco the UK grocery retailer is to drop Buy One Get One Free offers on food. Following Asda, who dropped these offers a while back and Sainsburys who have also announced they will reduce the number of offers.

Food waste in the UK costs the average household £420 and the average Britain throws away 3* their body weight each year in food.

So what does this have to do with Lean Marketing?

well the insights are in the pdf booklet on the 7 Hidden Wastes of Marketing, to find it, go to this page on Lean Marketing.   You’ll need to register on the site to get access to the papers, that’s just so we can see how popular it is, if you have any problems then please e-mail us and we’ll send you a copy of the paper. (info@resqmr.co.uk)

As a taster though (no pun intended) as to why BOGOF isn’t lean.

When you run BOGOF, you anticipate extra demand, sometimes 16* as much as your normal volume.

So how do you cope with this? you convert more of your cash to raw materials, to build the extra demand, next you might run production lines for longer or bring in casual staff, incurring overtime or additional labour costs, then you might build up a buffer of inventory stock for the start of the promotion, incurring extra storage costs becasue you can’t be sure where demand will go up first and by how much.

and for the pleasure of all this you have received half the normal revenue per unit sold, you didn’t assume that the supermarkets pay, did you?

All in all your costs have gone up and revenue per unit down, never mind you can console yourself that the consumer got Value (they paid less) only if the figures above for waste are to be believed did the consumer derive value or just guilt from throwing good products away?

and what happens when the promotion ends? yep you’ve guessed it your demand drops normally well below your normal volume, so now you have staff with nothing to do – except you have accountants who want the machines run, the people kept busy and the overheads absorbed, so you make to stock………..

and to clear the stock your sales and marketing team might decide to run a BOGOF with another outlet………..

and then your brand looks as though it is permanently discounted and the marketing team may decide they need to spend money on campaigns to address this in the marketplace and to re-establish the brand…….

How many brands do you recognise as always being on promotion somewhere??

Thanks for reading

Mark    http://www.resqmr.co.uk

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LEAN – It won’t work here!

Alternative Title “Who else uses LEAN?”

So Lean isn’t for you or your company then, it won’t work in your industry, it’s for car makers or those people on a production line isn’t it?

It occurred to us that a great number of organisations have lean specialists, lean trainers, change managers etc who are trained in and utilise lean and six sigma techniques everyday, to drive change yet where can you find which organisations they are.

Try and find the “Lean” department in structure charts, organisational diagrams and the like and you’ll struggle; you see lean doesn’t lend itself to a single department, it needs to permeate everywhere. Lean practitioners will have other names “progamme managers”, “process engineering”, “Improvement specialist” and so on.

So it not obvious, from the outside, which organisations are using lean & six sigma principles and tools to drive their business forward. Some will just be using lean in operations, production, & distribution, others in offices & call centres, the more progressive in lean accounting and one or two real trialblazers in lean marketing.

Hence, this list; it is built from our collection of articles we have read and from profiles of individuals who claim they use lean thinking and six sigma in their roles.

So next time you hear “Lean, it won’t work here!” you might just want to point people to this blog, to show them where it is working.

The aim of this blog is simple; to record the names of all the businesses, with UK bases*, who use lean and six sigma as methodologies and improvement techniques or employ people who claim to use lean as one of their primary improvement technique.

*- the UK is big enough for us right now.

Please feel free to send us details of companies you know who use it, all we ask is you provide some evidence (an article, a profile etc) & the business sector they are in and we’ll add them to the list.

 First published 13/10/09.

Here’s a few for starters

Lean Banking

  • LloydsTSB
  • Barclays
  • CO-OP
  • GE Cards
  • RBS

Lean Retailers

  • Zara
  • Littlewoods Shop Direct
  • Orange
  • Dixon Stores Group
  • Starbucks
  • Tesco

Lean Utilities

  • Severn Trent Water
  • Thames Water

Lean Insurance

  • Aviva
  • Willis
  • Axa
  • Zurich

Lean Food

  • HJ Heinz
  • Mars
  • Tulip
  • United Biscuits
  • Kerry Group

Lean IT

  • Hewlett Packard
  • Siemens
  • Fujitsu
  • Unisys

Lean Councils

  • Leicester City Council
  • Bristol City Council
  • Suffolk County Council

Lean NHS

  • Birmingham Children’s Hospital
  • Guy’s & St Thomas’s Hospital NHS Trust
  • Gwent Healthcare NHS Trust

Lean Engineering

  • BAE Systems
  • Toyota
  • Harley Davidson
  • ABB

 

Lean Pharmaceuticals

  • Eli Lilley
  • 3M
  • Bausch & Lomb
  • GlaxoSmithKline
  • Smith & Nephew

Please let us know if these details aren’t correct and we’ll amend them straight away.

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What are the traits of a Lean Manager?

We’ve moved What are the traits of a Lean Manager to our new Lean Management website.

About the Author;

Mark Greenhouse has been working on the application of Lean management in Legal and design led Manufacturing companies for the past 5 years. His own Lean journey started back in 1988 when he started study of Production Engineering. He’s applied lean in many organisation types, finance, call centres, banking, FMCG etc. Mark also provides lectures on operational management at Leeds University Business School.

 

Do you REALLY listen?

Do you listen to the Voice of Your Customers? I mean really listen, not just to what they say but what they do and how it affects your business?

Could listening to the Voice Of the Customer (VOC) have saved a UK bank?

Back in autumn 2008, we highlighted the story of Norwich Union (Aviva, if you watch the adverts or are based anywhere outside the UK) who had just started a car insurance marketing campaign which we felt was a really good example of Lean Marketing.

WHAT WAS IT?

NU (Norwich Union) offered to give its potential customers a quote for car insurance and at the same time it would give prices from its competitors (using web technology) even if they were cheaper.

WHY?

We hypothesised that NU was testing similar work to that we talk about in Lean Marketing, in which we talk of Customer Value & Loyalty being built on three core foundations;

  1. Features & Benefits – what is it about your product/service that are the hygiene factors? what sets your product/service apart from the competitors?
  2. Brand – what does the brand say about how you’ll treat me as a customer? in these credit-crunch days, how much confidence do I have you’ll be here next year?
  3. Price – often “quoted” as the single reason customers buy from a company however it’s rarely the biggest reason!! (try testing people by asking what their competitors charge – if it’s that important surely they’d know?)

These foundations impact on the value customers place on the total package they receive and on their loyalty, the exact nature of the impact varies, depending on the industry. However we believe NU was saying if you value our Features and Benefits, trust our Brand then our Price is less important and we don’t have to be the cheapest in the market.

I can hear almost what you saying “but they’ll have lost potential customers”.

Almost certainly they have; there are consumers out there who buy the cheapest, but exactly what have NU lost?

Potential customers who were basing their purchase solely on price, so what would happen at the renewal of their insurance? they’d look for the cheapest supplier again. So NU would have invested (marketing & sales) resources in acquiring a customer, incurred costs setting up their details (operational resources), sending out policy document and packs (distribution resources) only to have that customer looking to leave after one year. This type of customer is probably less likely to have bought anything else from NU, the price was their largest consideration.

Contrast this with the customers they may get on their book with Lean Marketing? they are not so readily driven by price, these customers are also placing more value on the Features & Benefits and Brand offered by NU. So again a hypothesis, these customers are probably more likely to buy other products (cross sales) and more likely to stay with the company when it comes to renewal.

Result: the organisation removes one of the “7 Hidden Wastes of Marketing” – the waste of attracting customers who only buy one product once based purely on price! There is always someone else waiting with bigger and deeper pockets ready to compete on price.

Does it work?

Well the advert appeared to run for a couple of months, in Autumn 2008 and then stopped, now it is back and running again, a classic direct marketing test you could say.

We are summarising that the fact that it is back and running is because it worked;

  1. customers acquired by Norwich Union have proved to be more robust, less likely to cancel!
  2. more likely to purchase other Norwich Union products.

we can’t say that they are more likely to renew, the advert appears to have only been running for 7 months so far, we’ll know if this strategy stays past Oct/Nov later this year.

You may have also noticed that the UK price comparison (moneysupermarket, gocompare, confused.com etc) websites have started introducing new features that compare the product features and allow for feedback on customer experience (of the brand) – have they too realised that not everyone buys on price alone?

So could this help anyone else? even have saved a UK Bank?

Back in in 2006/07 HBOS (now part of Lloyds Banking Group) implemented a new mortgage strategy, prior to whch they commanded 21% of the new mortgage market. The strategy which was simple and not too dissimilar to NU’s, was that HBOS would no longer offer potential and existing customers different mortgages @ different prices.  There would be one group of prices and they would be priced to maintain a reasonable margin for the bank.

(In the UK most lenders had a policy of offering new customers introductory rates to entice them in these would rise at the end of a fixed period – though you could move and re-mortgage as a new customer rate with another lender.)

So what was the result? The HBOS share of the new mortgage market dropped 8% from 21% – or a 62% reduction – in a six month period. Other lenders retained their policy of offering great deals to new customers. HBOS on the other hand was offering not so great deals to new customers but offering better deals to its’ own customers coming to the end of their existing deal – to try and improve customer retention.

What were potential and new customers telling HBOS? over half (62%) of the customers HBOS could have expected to sell to, went elsewhere. Was it that

  1. The features and benefits of the mortgage weren’t compelling enough over those of it’s rivals?
  2. The brand wasn’t strong enough to convince these people to come to the company?
  3. Price became the primary factor in the decision making process – effectively customers saying “We’re that strapped for cash we need to watch every penny?”

This last one I find interesting – was it the first warning sign of the economic health of HBOS customers or even the housing market and economy in general?

It certainly should have highlighted that 62% of the customers on the existing mortgage book might not be interested in other products (cross-selling), they might only have bought on price alone. Or highlighted that the branding work and the features and benefits of the HBOS mortgages were not regarded as positively different enough by over half the market – the same conclusion could be drawn about the competitors. Remember these customers came to HBOS prior to their pricing changes.

Did HBOS listen? We’ve no idea, the only articles in the public domain talk of corrective pricing strategies that reversed the previous strategy and boosted their share of new mortgages back up to the 15-20% band.

Maybe HBOS did consider what their customers (existing and potential) were telling them, maybe they changed their features and benefits, maybe they changed their branding work, we’ve no evidence, they never said, maybe they considered all this and dismissed it.

Maybe they considered the shareholder customers above those who bought the product and services. (The share price dropped when HBOS admitted that their share of the mortgage market had dropped.)

If you realised that 62% of your market were

  • in financial difficulties
  • couldn’t discern product differences between providers
  • didn’t believe your brand offered a different experience?

What would you do differently?Listen, ask more questions, change what you do, stay doing the same, get out (let someone esle take the risk)…..

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Is President Obama poised to go lean?

I was intrigued as to what President Obama would make his priorities in his first address to the US population so watched his first weekly video address on the BBC website.

Towards the end, just on 4 mins, he mentions that he is looking to root out waste & inefficiency in government.

So thinking that maybe Obama has come across lean I googled “Obama Lean” and found two key stories;

  • He has appointed a Chief Performance Officer to the White House staff, Nancy Killefer an appointee from McKinsey and the story is covered here and covers what her role entails.
  • Given his appointment to the post of the President on Tuesday he found time in the week before to visit a company, Cardinal Fasteners who have used lean techniques since 1998 and used it to turn to new technologies in the last two years.

Visit the Cardinal Fasteners website to see how they promote lean thinking.   

So what is the evidence as to whether Obama might be a fan of Lean?

  • He’s appointed a Chief Performance Officer,
  • He talks of reducing waste and inefficency, not just inefficiency or becoming more productive,
  • He visited and championed a company who have used lean techniques, in the week he took on the most powerful office.

Okay it might not seem much and he hasn’t actually used the word lean or lean thinking but we’ll keep an eye and ear open for any other stories we see about this, it may help promote lean over here too.

Visit www.resqmr.co.uk for details of how lean can be applied across many functions in organisations including; FREE papers and guides on LEAN in marketing, sales, accounting, HR etc.

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