Growth IQ
Page 11
Forbes’s Top Ten of the World’s Most Innovative Companies (2017):
Rank
Name
Country
Industry
1
SALESFORCE.COM INC
USA
Application Software
2
TESLA INC
USA
Automobile Manufacturers
3
AMAZON.COM INC
USA
Internet and Direct Market Retail
4
SHANGHAI RAAS BLOOD PRODUCTS CO LTD
CHN
Biotechnology
5
NETFLIX INC
USA
Internet and Direct Market Retail
6
INCYTE CORP
USA
Biotechnology
7
HINDUSTAN UNILEVER LIMITED
IND
Household Products
8
ASIAN PAINTS LIMITED
IND
Speciality Chemicals
9
NAVER
KOR
Internet Software and Services
10
REGENERON PHARMACEUTICALS
USA
Biotechnology
It’s when you are too product-focused that you get into trouble. What the market demands today is much greater flexibility and focus on the customer, otherwise known as being “market-led” or “customer-led.” This is where a company seeks to determine what products a customer might want in the future and then moves to develop those products. Large or small, it doesn’t matter. There are so many ways to execute this path—more than this chapter could ever do justice. But what this chapter will cover are some great examples of how companies used a combination of decisions, together with their current market context, in the right sequence, to give them the competitive advantage.
STORY
1
KYLIE COSMETICS
KEEPING UP WITH KYLIE JENNER (#KUWKJ)
[Millennials] create a community and their own language and their own world and communicate and consume in a different way.
—JO MALONE, founder of Jo Malone and Jo Loves
THE TRADITIONAL MAKEUP MARKET WAS down 1.3 percent in 2016. But independent brands were up 42.7 percent. The growth of these smaller independent brands is a direct reflection of a change in market context, consumer tastes, and buyer demographics. Case in point . . .
One of the most successful recent examples of a company executing a highly targeted and effective Product Expansion growth strategy is Kylie Jenner, best known as being the youngest of the Kardashian-Jenner empire.
In the United States, “women are spending more [on beauty products], 13% more on foundation, 18% more on concealer, 35% of women use more than five makeup products every day and 80% use three skin care products every day . . . and six mascaras are sold per minute in the U.S. . . . Sixty-five percent of teens rely on social media to discover and select beauty products.”
Regardless of what you may think of reality TV or the Kardashian family, this is an impressive story that takes advantage of many of the benefits that technology and changing consumer behavior provide companies today, which is at the heart of Growth IQ.
Ever since I was probably fifteen I’ve been obsessed with lipstick. I could never find a lip liner and lipstick that were a perfect match. So that’s where I thought of the idea that I wanted to create my own product.
—KYLIE JENNER
Taking full advantage of her exposure on the Keeping Up with the Kardashians television show, Kylie became an influential voice on makeup and fashion. In 2012, when she was only fifteen years old, she collaborated with the clothing brand PacSun, along with her sister Kendall, and created a line of clothing, “Kendall and Kylie,” targeted at teenage girls, which was their natural fan and target customer base. In 2014 and 2015, Time magazine listed the Jenner sisters as one of their “Most Influential Teens in 2014.” If that wasn’t enough, in 2015 Kylie launched her own cosmetics line, Kylie Cosmetics. What made her believe she could successfully enter the cosmetics industry occupied by some of the most famous brands in the world?
First, she had a passion for makeup and fashion. Second, she had the ability to leverage a huge platform from both the show and her growing fan base, which allowed her to form (required) manufacturing and distribution Partnerships. Third, she saw an unmet need in the market. Fourth, she wanted to focus on customers who were just like her—teenagers.
Let’s focus in on the second one for a moment, because it is an important piece of this lesson. In December 2017, at twenty years of age, she reached 100 million followers on Instagram alone. She also has more than 24 million Twitter followers and 20 million Facebook followers, bringing her social media reach to more than 150 million people. In short, she had one of the largest social media followings on the planet (maybe only rivaled by her big sister Kim).
As part of a Product Expansion strategy, its initial collection of discrete cosmetic products was expanded over subsequent months (yes . . . months) in two different directions. One direction was related cosmetic categories: Kyshadows (eye-shadow palettes), Kyliners (eyeliner), SnapChat tutorials (which average ten million views), a mobile app, and other fashion products. The other direction was the bundling of products thematically (Kylie’s Vacation Edition, Kylie’s Valentine Collection).
Now firmly established in her target market, Jenner leveraged a personal milestone to stretch the edges of that market with these new products—to continue to be relevant to her aging, yet still teenage, customer base—with the #KylieTurns20 product campaign.
The success of this strategy depended heavily on both combination and sequence. Yes, there is no question that part of her success is based on making the most of her massive platform, but that will only get you so far. Similar to what we saw with Jessica Alba and The Honest Company, being a celebrity might get your foot in the door, but without great products, a loyal customer base, and a strong customer experience, it won’t matter.
Many other (much older and more established) celebrities have attempted to extend their brand by venturing into the business world, only to fail. Jenner—along with her business manager and mother, Kris Jenner, and her extended business team, including Laura Nelson and John Nelson of Seed Beauty—had to first capture a sizable share of her target market by playing off the context of Kylie’s teen stardom and massively loyal fan base.
The sequence of this massive growth was critical. Kylie started by establishing her personal brand first, before she endorsed or released any products on her own. Next, she created her own niche within the family empire, different from her siblings, and stayed focused there, with various endorsements and partnerships. Then, once those efforts had shown promising results, she launched her own line of “Lip Kits”—in a limited run, at a premium price—which sold out in minutes.
Karin Tracy, Facebook’s head of Industry–Beauty/Fashion/Luxury/Retail, noted: “Facebook has 1.9 billion users, WhatsApp has 1.2 billion, Inst
agram has 700 million and Facebook messenger has 1.2 billion. On those combined platforms there are 60 million businesses and every day there are 526 million posts that relate to the beauty industry.”
Some might argue that this is the classic “scarcity” marketing tactic, and they may be right. Was it intentional or not? Who knows, but she has become a master at knowing her customer base (or, rather, fan base), catering to their needs and continuously pursuing Product Expansion to extend her product line as her customer base ages into adulthood.
The combination of her marketing and social media moves was a critical component of its success. As social media replaces traditional media, it’s possible you won’t see an ad in Teen Vogue anytime soon from Kylie Cosmetics. Kylie is leveraging all aspects of social media marketing (video, Instagram, Twitter, Facebook) to stretch the boundaries of customer engagement.
Fabrizio Freda of Estée Lauder observed: “Younger generations are defining the culture with images of self-expression. They take more pictures in a day on average than their parents took in a year. Sixty-five percent of teens rely on social media to discover and select beauty products. . . . Volatility and the pace of change are not diminishing. What we’re living through is not a moment in time, it’s the new reality. . . . The art of leading through change is understanding what has not changed and how to leverage our historical strengths.”
Spending zero dollars is effective when it’s authentic. Digital isn’t a strategy or a channel; it’s where we live. Our products are promoted by people who don’t work for the company. The team is endless. . . . Direct interaction [with consumers through social media] allows four-day product creation and no focus groups. When product development lead times are days, you don’t have to commit to inventory on a best guess basis.
—LAURA NELSON, cofounder and president, and JOHN NELSON, cofounder and CEO, of Seed Beauty
In less than two years, and with no paid advertising campaigns, Kylie Cosmetics is now a full-service, direct-to-consumer (D2C) beauty brand and social media powerhouse, with an estimated $600 million in revenue. Jenner was recently named #57 on the Fast Company list of the hundred most creative people in business in 2017.
Let’s put this all in perspective. How does Kylie Cosmetics revenue performance measure up against other beauty titans? Well, it took fashion genius Tom Ford ten years to reach half a billion dollars in sales after he launched his beauty line in 2006. It took L’Oréal’s Lancôme cosmetics line eighty years to hit $1 billion. It took MAC thirteen years to achieve $250 million and another ten years to reach $500 million, even with Estée Lauder owning a majority and then all of it during that time frame.
As for Kylie Jenner, the current rate of growth of her company suggests that she will rocket past the $1 billion mark by 2022 while still picking up speed. And there appears to be no end in sight.
KYLIE COSMETICS
KEY TAKEAWAYS
The sequence of this massive growth was critical. Kylie started by establishing her personal brand, before she endorsed or released any products on her own. Next, she created her own niche within the family empire and stayed focused there, with various endorsements and partnerships. Then, once those efforts had shown promising results, she decided to launch her own line of “Lip Kits.” Had she launched Lip Kits prior to realizing that her personal brand was growing and her target demographic wanted more from her, it may have been a fad that fizzled out as quickly as it had started.
Kylie Cosmetics has a deep and personal understanding and connection to its massive customer (fan) base. Kylie identified an unmet need for herself and decided to fill it for others like her (teenagers who enjoy makeup). She didn’t open an R&D lab and test products over the course of years before she launched. She took advantage of the capabilities of a strategic partner (Partnership), Seed Beauty, which had seventeen years of beauty experience to help her company fast-track production and time to market.
Kylie Cosmetics was able to grow using multiple paths in combination. It wanted to sell more existing products (Lip Kits) to its existing customers (Customer Base Penetration). In addition, it launched new products (Product Expansion) to sell to its ever-growing customer base and attracted new customers (Customer and Product Diversification) with all of the new products it was putting out. It also Optimized Sales as it struggled to keep up with demand from sales channels, so it had to find a cost-effective way to get its products into the hands of more people.
STORY
2
JOHN DEERE
AND THE “BEET” GOES ON
Necessity is the mother of invention.
—PROVERB
AT THE TURN OF THE twentieth century, most Americans were farmers or came from farm families, and almost half of the U.S. population still lived on farms. There were almost six million farms, and that number was still growing, as was the amount of land used for agriculture. Several factors accounted for this extraordinary achievement. One was the expansion to the West. Another was the application of machinery to farming.
These increases continued well into the 1900s, but by mid-century both trends had been reversed. The 1920s saw the beginnings of large progressive changes from horse to tractor and advancements in “horsepower,” and by the start of the twenty-first century, the market context had dramatically changed.
The total number of farms had shrunk to fewer than two million. Less than 2 percent of the total population now lived on farms or worked in agriculture, and agriculture contributed a much smaller share to the total economy than in 1900.
Yet, with only one-third as much total labor as in 1900, by the end of the twentieth century, U.S. agriculture was producing seven times as much output, and average farm family incomes had risen to equal or surpass nonfarm family incomes. Farmers—and those who provided products and services to farmers, such as John Deere and Sears Roebuck (yes, that Sears)—were growing.
PLOWING AHEAD
When you think of the world’s most innovative industries, farm machinery probably doesn’t come to mind. Yet, 180-year-old John Deere, with its iconic green tractors and other farm equipment and its yellow leaping buck logo, is not only one of the world’s largest companies; it also puts most other product innovators to shame. And when it comes to selling new products to its existing customer base, at the right time, the right combination of direct sales, and with partners, it’s nearly unmatched.
Product Expansion has always been the story of John Deere. In fact, the company was founded by the eponymous Mr. Deere in Grand Detour, Illinois, in 1837 to exploit a new invention. A blacksmith by trade, Deere noticed that the rich local soil tended to stick to the face of traditional iron plows. So he took a Scottish saw blade and worked it into a plow blade. It worked brilliantly; the dirt slid right off the smooth surface, without the need to be regularly “scoured” off.
The John Deere scour-less plow blade took the market by storm—it was a great product, filling a specific customer’s (farmers) need, sold via the right sales channels (storefront), with effective payment terms. The combination of these things from John Deere is given considerable credit with helping to open the Great Plains to agriculture. The rest is history.
The new century brought new challenges, especially for heavy equipment manufacturers. The first came at the very beginning: gasoline-powered tractors, pioneered by a new company, International Harvester, quickly made John Deere’s current equipment line all but obsolete. John Deere needed to get into the tractor business, and after an internal effort to build its own engines proved unsuccessful, it decided to purchase the Waterloo Gasoline Engine Company, a maker of small, two-cylinder motors, in 1918.
It’s very important that we take the voice of the customer into our design process. That’s our job, and we have people all over the world who are talking every day to customers. It’s important to John Deere that we design our product—no matter what type—to me
et the needs of our customers.
—GREG DOHERTY, group director, product and technology marketing, for John Deere’s worldwide commercial and consumer equipment division
John Deere could have resisted the change in market context—it could have ignored what its customers in the farming community wanted. The business world is littered with companies that didn’t want to change—even when the market was changing around them. Instead, for the rest of the century, John Deere regularly introduced a new generation of tractors, self-propelled combines, harvesters, seed drills, cotton pickers . . . and, increasingly, construction equipment, as well, once every twenty years or so, following the traditional twentieth-century-long product expansion process.
At their introduction, each of these generations of machinery represented the pinnacle of new innovation in agricultural equipment. You may think that, due to their product expansion prowess, Deere was a product-led company. This was only partially true.
John Deere developed new products based on years of studying and querying farmers about their needs, and while its competition struggled to build a network of salesmen, John Deere’s equipment dealers were an open secret of its success. Dealers worked closely with farmers to customize a machine’s weight, traction, and accessories. A strong dealer network combined with the right products allowed John Deere to dominate the market.
A SOUND IDEA