Growth IQ

by Tiffani Bova

  If you are pursuing a path based on Product Expansion, you don’t have to go it alone. Hitting the market quickly with your new product, backed by established supply and distribution channels, scalable manufacturing, and a tested marketing and sales program aimed at established customers—all or part of which is delivered by partners—is almost always better than trying to go it alone and learn as you go.

  COMBINATION: PATH 4—

  Product Expansion + Path 9—Co-Opetition

  In this case, your new partner may also be a perceived or real competitor. Why would you choose to team up with a company whose goal, at best, is to take your business away—and, at worst, is to crush you into oblivion? Pragmatism.

  The reality of the business world is that there is almost no company that is your perfect, pure competitor. There are always points of contact where you both share the same interests or suffer the same weaknesses—situations that can only be improved by working together. These arrangements are given various titles—including joint ventures, outsourcing agreements, coalitions, associations, cooperative research, and product licensing—but all have the common theme of companies that are otherwise competitors finding ways to work together for common interests—even as they are locked in ferocious competition the rest of the time.

  Unfortunately, competitive collaboration between companies often is the result of desperation, when both companies are under serious, existential threats, or the entire industry is. A far wiser growth strategy is to enter into these agreements when times are good and the opportunity is at its peak—that is, when you first enter a new market with a new product or line. Only then can Co-opetition be a true growth path, not just a last-ditch attempt at survival.

  PATH 5

  CUSTOMER AND PRODUCT DIVERSIFICATION

  CUSTOMER/PRODUCT DIVERIFICATION

  Taking an established American brand into an emerging market requires a careful assessment of the local landscape and tastes and a flexible approach to your product’s place in it. There’s got to be a balance. We call it “glocal.” It’s the global together with the local that’s the winning brand.

  —IRENE ROSENFELD, CEO and chairman of Mondeleˉz International

  WHY CUSTOMER AND PRODUCT DIVERSIFICATION MATTERS

  Almost two-thirds (63 percent) say they like it when manufacturers introduce new products, and more than half (57 percent) say they purchased a new product during their last shopping trip.

  Consumers want more new products on the market that are affordable, healthy, convenient, and environmentally friendly.

  Trade growth in 2018 should pick up slightly to between 2.1 percent and 4.0 percent [World Trade Organization].

  The value of global goods trade is expected to grow in real terms to around $18 trillion in 2030 or implied real trade growth of 3.3 percent per annum.

  By 2030, the trade links between China and India, as well as other Southeast Asian economies like Malaysia, Indonesia, and Singapore, will become ever more important to global trade.

  TO DIVERSIFY OR NOT

  I believe the auto industry will change more in the next five to 10 years than it has in the last 50.

  —MARY BARRA, CEO and chairman of General Motors

  The Customer and Product Diversification growth path happens to be the last modernized take on the Ansoff Matrix within Growth IQ. The key differences between this and the previous (three) paths (not including Customer Experience) is that the others have centered on varying levels of risk, reward, and investments as they relate to customers, products, and markets respectively.

  It’s rare to find a single market or a single product that continues to perform in its original state over the long term. When the need for something becomes imperative, you are forced to find ways of getting or achieving it. It is a common misperception that companies facing a growth stall need to completely rethink their current products or services and customers. Poor performance alone should not be the catalyst for a company to pursue the Customer and Product Diversification path. I have observed far too many companies on this growth path that bite off more than they can chew with little consideration for the impact this kind of effort can have on the entire organization.

  First of all, culture matters a lot in this case. If you decide on this path, you’d better make sure you have employees who are open to this much change: in other words, a culture of innovation. Before you even consider this growth path, make sure you fully understand your company’s market context. Furthermore, you must be keenly aware of the sequence with which you pursue this path and what combination makes the most sense for you. If you aren’t sure about the company’s ability to launch new products—and everything that goes along with that, while at the same time acquiring an entirely new customer type—then it might make more sense to start with Product Expansion and Market Acceleration to test capabilities. Then, and only then, double down by pushing further into new products, markets, and customers.

  The nature of this path is that it allows companies to pursue top-line growth by developing new products for completely new markets and customers. As such, it is inherently riskier than Customer Base Penetration, Product Expansion, or Market Acceleration because, by definition, the organization has little or no experience of the new product, customer, or market segment. In addition, there will be new skills needed, especially if a company has never attempted to expand beyond its core product lineup. It absolutely will require new capabilities in terms of marketing and sales to effectively execute this path. Taking an existing sales strategy—in an existing market with an existing product—does not just “lift and shift” without careful consideration to the new market context a company will encounter when pursuing Customer and Product Diversification. Partnering with other companies (via either Partnerships or Co-opetition) can help to offset some internal capability gaps. However, those efforts may only be a portion of the overall go-to-market efforts. It may still be necessary to have in-house dedicated resources building out direct sales capabilities.

  So while this path may seem familiar or even something you have successfully, or unsuccessfully, done in the past, this still remains one of the most challenging decisions a company can make. The risks can be extraordinary—but so can the rewards. You should ensure that you clearly understand whether you have captured all of the options available to you with the existing products and services you offer prior to considering this path. It might make more sense to start with Customer Base Penetration to see if you can stimulate additional growth within the existing customer base. Or would choosing the Optimize Sales path involve less risk and allow you to improve sales performance of the existing set of products you have? Or could you take existing products into new markets through a local partnership (Partnerships) instead? Meaning: Could you improve performance without taking such a potentially capital- and people-intensive path? Then and only then can you analyze:

  Whether you should be pursuing this path at this time;

  If you have the resources (people and capital) and capabilities to develop entirely new products or even modify existing ones;

  If you have the proper sales, distribution, and partnership capabilities in place to enter new markets or new customer segments without overwhelming the existing business.

  Success stories abound—think how the Walt Disney Company has diversified its customers and products over the decades with tremendous success. It expanded from its core animation business into theme parks, live entertainment, cruise lines, resorts, planned residential communities, TV broadcasting, and retailing by buying or developing the strategic assets it needed along the way, all in pursuit of new customers.

  But with the good also come stories of infamous and costly failures even with companies who seem unstoppable in their constant pursuit of diversification. Let’s take Amazon and its Fire Phone, which debuted in 2014. It was initially
priced at $199 with a two-year contract. Sales plummeted in the weeks and months following the phone’s release. Executives on the Fire Phone team later acknowledged that they didn’t get the price right when they launched. Eventually, Amazon had to write down $170 million in costs associated with Fire Phone inventory. Don’t forget, even in failures there are lessons, which, if you’re paying attention, can be applied in other situations.

  By definition, a new product is an untested product, one whose market reception you do not yet know. You may have a superstar on your hands, or you may have a complete profit-sucking dud. By the same token, a new market is one that you may have learned something about but you haven’t yet experienced. You likely know no one in that market, you don’t yet understand the nuances of customer desire, and you face well-established competitors—it’s like you’re laying siege to a castle.

  The best time to pursue a Customer and Product Diversification strategy is when your company isn’t coming from a place of desperation but rather when the company is prospering. Why? That’s when you are most impervious to failure, and you have both momentum and capital reserves. It is also when shareholders and employees are most likely to support your strategy. Unfortunately, many companies only resort to diversification when they are in trouble: their current market is shrinking or their current products increasingly are becoming uncompetitive. In this weakened state, unless you have considerable cash reserves, or another growth path is available to combine with Customer and Product Diversification while this longer-term investment takes hold, this path can potentially be a mistake (sometimes fatal).

  STORY

  1

  MARVEL

  SUPERHERO SAVES THE DAY

  Companies are successful or not because they get market transitions right.

  —JOHN CHAMBERS, former chairman and CEO of Cisco

  TIMELY PUBLICATIONS (MARVEL’S ORIGINAL NAME until 1961), founded in 1939, during the first “Golden Age” of comics, had always been a second-tier but financially healthy player operating in the shadow of mighty DC Comics, home of Superman and Batman. But, thanks to several popular creations—notably Captain America—Marvel was able to carve out a sustainable niche.

  While the government investigations of the morality of comic books in the 1950s and the aging of baby boomers in the 1960s wiped out much of the competition, Marvel managed to hang on. In fact, thanks to a new group of creators, most famously Jack Kirby and Stan Lee, Marvel not only gained ground against an aging DC Comics but developed a cultlike following among a new generation of comic book fans that admired the maverick and iconoclastic nature of its characters and plots.

  Beginning in 1993, the business began to show signs of a growth stall. Unfortunately, Marvel’s management for its part made a number of shortsighted and costly decisions, which put the company heavily in debt. How is it that a brand steeped in fifty-plus years of history, revered by loyal customers and a stable of five thousand beloved comic book characters including the Hulk, X-Men, the Fantastic Four, and Spider-Man, found itself facing an uncertain future? In fact, the crisis erupted quickly.

  Looking back, you can clearly see that the leadership team misjudged the market context at a crucial time in the company’s history and then exacerbated the problem by raising prices in a declining industry of comic books and trading cards, not understanding the impact of the collapsing newsstand market, misjudging the most active customer cohort (collector/speculators) who were exiting the market, and, finally, according to some industry insiders, producing poor-quality product. Together, these bad decisions, coupled with management infighting, caused a perfect storm of internal and external threats facing this iconic brand.

  A cult following and critical acclaim simply weren’t enough to fend off disaster. On December 27, 1996, Marvel filed for bankruptcy. A third of its employees were laid off, and, worse, it owed a lot of money. In 2000, the company declared a loss of $105 million. The new century began with Marvel facing an uncertain future.

  IRON MAN: B-LIST CHARACTER

  By 2008 when Iron Man hit movie theaters around the globe, Marvel had not only turned around its fortunes, but it was about to capture global preeminence in the field of character-based entertainment.

  How the company performed this apparent miracle is a story of a brilliant application of the right growth path in the appropriate combination and sequence applied with precision in a changing market context. Indeed, so successful was this initiative that Marvel has in recent years bent the context to its own advantage.

  How did Marvel do it? It realized that the value of its brand wasn’t actually comic books but the comic book characters themselves. In 1997, Toy Biz and Marvel Entertainment Group merged to end the bankruptcy, forming Marvel Enterprises Inc. Though the newly named company was destined to continue bleeding cash for several more years, Marvel had a vision—more precisely, Customer and Product Diversification and Product Expansion strategies—to get back to growth.

  Remember, these growth paths are about producing new products—to both existing and new markets and customers. It was a “bet the company” risk meant to leap into hot new markets or make investments in new, unchartered territories.

  While it sounds complicated, it really was quite simple. In this case, Customer and Product Diversification could have only focused on creating new comic book characters for new kinds of readers (customers). But instead, Marvel chose to bet big. It was able to stay close to its core and innovate by taking advantage of its already developed assets (products), which nobody else could replicate—Marvel’s indisputable stable of iconic comic book characters. Because those characters had engendered a loyal customer base, it was able to diversify the “product” by thinking of other “mediums” in which it could use those assets to its advantage, and it chose . . . movies.

  However, just because Marvel was a large company with a globally recognized brand didn’t mean it could diversify both products and target customer without any issues. Marvel actually had been burned before when it pursued Customer and Product Diversification with its launch of “Marvel Mania” theme restaurants, Marvel interactive CD-ROMs, and a new trading card initiative with SkyBox. After opening one location of Marvel Mania in 1998, it was closed a year later. Also, the CD-ROM and trading card plans never happened. They may have been the right ideas when the concepts were first discussed, but by the time they had launched or planned to launch the context of the market had already shifted.

  When Marvel realized that the context of the market had shifted but still wanted to diversify its portfolio, it had to come up with another option. Marvel chose to work with various movie studios by pursuing the Partnership and Customer and Product Diversification paths in combination. Unfortunately, like its previous attempts, this effort proved to be misguided as well.

  For many consumer entertainment and media businesses, avid or loyal fans—who typically represent 10 to 20 percent of a franchise’s user base—can drive 80 percent or more of that franchise’s overall business value. Content efforts therefore must prioritize initiatives aimed at super-serving them—deepening engagement with avid fans and simultaneously extending the brands and franchises associated with these passionate fans into new areas.

  Why? Among Spider-Man, X-Men, and Blade, the licensing deals they made with 20th Century Fox and Sony proved to be highly lucrative . . . for the studios, but not for Marvel. Blade was a modest success, X-Men helped relaunch the era of superhero movies, and Spider-Man grossed $400 million. Yet while Blade made $70 million at the U.S. box office, Marvel took home only a flat fee of . . . $25,000. It had the same flat-fee scenario with X-Men. Maybe it seemed like a great idea on paper, but without a new strategy they were “giving away the farm” . . . literally. The partnership arrangement was a tremendous top-line revenue generator for its partners, and dismal for Marvel.

  Now, even at its darkest hour, Marvel had to find a solution to its critical situ
ation. In 2003, Endeavor talent agent David Maisel pitched Marvel on a simple but radical idea: Why, he asked, should Marvel continue to give away its best assets to other companies for pennies on the dollar? If Marvel wanted to take advantage of its existing core assets (thousands of characters and story lines) and introduce them into another medium (movies, video games) and satisfy the loyal customer base, why not create a production studio of its own? Such a studio could develop and produce the titles that had been at the mercy of less-than-interested movie studios for decades, and Marvel could retain 100 percent of the profits. Now Marvel had to make a full pivot to Customer and Product Diversification, which required significant change in talent (people, including executives), products, and asset investment.

  While it wasn’t a quick decision, Marvel eventually agreed to a seven-year, $525 million deal through Merrill Lynch that put up ten of its most prized characters, including The Avengers, as collateral . . . and Marvel Studios was born.

  To say Marvel was faced with an “all or nothing” proposition would be an understatement—it was literally an existential bet. If the movies had failed, Marvel would have disappeared forever. If they had done nothing, they would have surely suffered a similar fate. At least with the infusion of cash, they had a chance to save themselves.

  As luck would have it, New Line Cinema let its option on Marvel’s Iron Man character run out two months after this deal was done, which gave Marvel the rights back to the character. But there was a catch. Because Iron Man was not one of the ten properties included in the Merrill Lynch deal, if Marvel wanted to make this movie, the company would have to use its own cash. Regardless, Marvel was determined. It wanted to launch its first film with a character that had never been in a live-action production—and Iron Man fit the bill. The rest is history.