The Marketing Agenda in the Internet Age
Part 4: Welcome to the Risk Society – New Digital Realities, New Risks
Risks are increasingly part of our business reality. Of course, business is always about taking risks, but these risks are deeper and more acute. On the one hand, there is a competitive pressure to produce more in order to improve the market and to make up costs. On the other hand, there is the pressure to innovate, to continuously produce other things and to take up new initiatives.
To choose and to do new things or bring focus is a risk. Because you might choose wrong. But by not-choosing you also take a risk. These two business needs can stand in each other’s way. To find balance is complicated.
Besides that, reputation in the context of the new digital reality is a new kind of risk. A careless tweet can affect your reputation for years.
Do you remember what an inadequate response from Goldman Sachs to a “dissident blogger” led to? Media have chased the company itself and the private Twitter account of the relevant employees for months.
Here are the big risks, as I see them, in a row.
Risk 1: Reputation
What are new marketing risks in the digital age? Here are some. The main change involved in going social is that to some extent your reputation is taken beyond your control. The outside world has a visible and audible opinion about you, outside your knowledge and out of the reach of most direct censorship. The Company has no control anymore. Through social media, customer groups, interest groups and pressure groups can take the initiative on opinions about your company and your decisions. Controlling a brand has thus become very difficult. Every company is under a public magnifying glass.
Actually, it has always been this way but now the pace, scope and intensity which companies can face, with uncontrollable initiatives outside of their knowledge, are truly of a different order than, say, 10 years ago. A ‘silly’ in your organization can be fatal and can ruin a long-running reputation at once.
This is not only true for companies, but also for politics.
In the Netherlands, for example, the youth movement #G500 was founded. Their goal is to include among their members 500 young people from different political parties, and to use their influence to legitimately affect the decisions of mainstream parties. In addition to physical presence at meetings of Dutch political parties, they support their initiative with massive attention through Twitter and Facebook. For the established political parties, this is a new phenomenon and a risk. Their feeling is that their political agenda is being hijacked by ‘outsiders’, and that they are being forced to formulate a response.
Another example is Apple, which was confronted with an initiative where it was made clear to the international market that iPhones were constructed in China by workers operating in extremely poor conditions. This wasn’t good news for Apple, and many customers concluded that they should have never done it that way. Apple was surprised by the news and had to intervene. Otherwise, the consequences for their reputation would have been bigger.
Reputation damage has, partly because of social media, become a potentially bigger risk. Step by step, the social and political communication becomes ‘wikileak-ed’. For businesses this is a new development. Sometimes it can be on purpose: reputation snipers, working for the competition, for example.
The lesson: every colleague in the organization has a responsibility within the organization and the way the organization comes out publicly. Be aware, don’t be stupid and realise that nothing is kept secret.
Risk 2: Fail to Choose or Choose Late
For many companies, the awareness of the risks leads to paralysis and risk aversion. Many Dutch companies are suspicious of what is new. This mentality clashes with what is really needed for innovation: the courage to take risks. Some companies, big or small, think linearly and want to know in advance what specific contribution each innovation will provide, while in reality innovation is a process of trial and error. Fortunately there are, even now in times of crisis, exceptions to this rule.
An example of failing to choose is, increasingly, what banks do. The strategy of banks has not significantly changed since the arrival of the internet and what most banks do is stick to the old business strategy. For example, crowdfunding should be addressed in the revenue model, but it is not. A signal for this lack of adaptation to the new world is that banks put the costs of cybercrime ever more on the customer. Also contactless payment via ‘ swipe ‘, which is now being pushed in Western Europe and the USA by financial institutions, leaves the traditional business model intact and can be seen as a lifetime extension of the existing thinking.
My estimate is that the existing banks stand no chance against new initiatives like Google and Apple are taking. They will choose too late.
For another example, Nokia is a company which has continued producing its old handsets for too long and has missed the market for smart phones. Nokia has chosen too late and benefitted too long from the old success. The question is whether they can still pull through as a result of its cooperation with Microsoft.
Stahl, a medium-sized manufacturer of chemicals for leather processing from the Dutch town of Waalwijk, has proven this point: invest amply and against the trend, be thrifty with staff and in organizing outlets and (as Keynes ever said) works. The company has a clear focus. To belong amongst the best in the industry with an own clearly defined market. This market consists of automobile manufacturers of expensive models (e.g. BMW) and fashion warehouses whom sell expensive bags from several thousand dollars (such as Hermes). This is a segment that shows growth even in times of crisis. Moreover, this approach also proves that focus can work (see my first column for MD No. 33, November 2012). Ultimately, the company is stronger and more successful after the crisis than before, going into the crisis. Look in your area. Maybe you see similar businesses that are clear in their choices and take risks, proving that this model works.
Not choosing is also a risk. Imagine, you have a restaurant and you want your restaurant to be packed every day, a nice ambition. How do you achieve that? You would probably think by having a very long menu people will always get what they like. Have you ever thought, however, that offering a long menu is a risk factor for the restaurant business? The likelihood of maintaining quality with so many different ingredients while keeping costs manageable is in fact relatively small. With a smaller menu you have focus. If you’re known as the restaurant where the finest fish or best steak is served, you eventually will have satisfied customers whom are willing to sit in the car or on the bus for hours.
For an example from the travel industry for a change, Corendon, which within 20 years has become one of the major players in the Dutch travel industry, continued to grow by 21% in 2012, while most competitors report a shrink in turnover. How can that be? Daring to take risks and responding quickly to trends in the industry and environment, Corendon sees a growth in retro destinations that were popular a few decades ago: Saint-Tropez, Israel, Cyprus in the coming years. They were forgotten by other providers for, among other things, political issues. Among baby boomers with a well-filled purses however, who have already experienced Brigitte Bardot, Corendon was successful. And new initiatives do not have to wait long: from next year, Corendon has a new goal: Albania, for the travelers who want something a little different.
The lesson? Not choosing or choosing late leads to an unclear brand. That makes continuity a perilous thing. Corendon and Stahl are examples of companies that choose clearly and precisely.
Risk 3: Incorrect Assessment of the Skills
Going back to the examples of Stahl and Corendon, these companies have made clear choices and are acting on them. One of their key success factors of course is that they have mapped out where they can perform because they have the necessary skills. Insight into one’s own skills is important. The lack of it is a risk. Digital communication will point out your incompetence quickly and finally, if needed. You need to be faster, better & cheaper. If you do not do so, the market will draw fast conclusions.
An example? Nowadays a lot of companies, especially big companies, think they can solely grow via an acquisition. However, if you do not have a clue what acquisitions are because you do not have the management capabilities, then a takeover will be a fiasco and will lead to capital destruction.
Acquisitions within a sector other than where you are now working is sometimes a very good idea, because of earning power through new combinations. It does however requires that you really understand that other branch, or else be willing to leave the responsibility for leadership with people who have that knowledge. Otherwise, the market will qualify you as an underperformer directly.
In the new digital reality, different competences are required than the reality of a plan able reality. For example, you also need a vision of the newly acquired business and the synergies. Digital tools itself do not lead to synergies.
The lesson: Do what you are good at and act on this with focus.
Risk 4: Assessment of the Market Development
A company can also (and this is a serious risk) misjudge the development of a market. Because markets are evolving rapidly in the digital age, this risk has also increased. Even whole market segmentations and customer images change, for example as a result of big data and the evolution to C2B.
Nokia really underestimated the development of the smartphone market. Several telephone companies have insufficiently anticipated the arrival of ‘ping’, that pushes the SMS market.
The marketing lesson here: follow people, not markets.
Risk 5: Tunnel Vision
The digital age rewards clever new combinations. If you limit yourself in your competitive analysis to the top 10 list as an entrepreneur of your industry and your position in this industry, then you probably cannot see your real competitor coming. Because he will, in the digital time, really come from an unexpected quarter. Did you know that over 70% of innovation in a particular industry comes from another industry? Almost all innovations in the newspaper world are made up and implemented by non-journalists. If you choose a best practice approach, as smart follower, by looking around at your market, you will mostly be second. It is a much pursued strategy but you will never be a “first rate”. The top is for the entrepreneur who, blue ocean marketing is it called, invents themselves. Apple and IKEA are the examples: IKEA invented IKEA.
A wonderful example, in my opinion, is Cirque du Soleil. A huge success that brings a lot of beauty into the lives of many. Actually it is a new combination of elements from classical music, ballet, and circus. A circus entrepreneur who has never looked “over the edge” would never come up with this.
If you think it is sufficient to monitor your own industry, you run a great risk. Apart from the fact that industries fade, you do not see innovation coming until you are too late.
The lesson: Look around you!
Risk Management, Suggestions
Listen to you customers, what they think of you and your new ideas. Set up a new community as a digital successor of the focus groups. Loyal customers are advantageous. Practice product development together with your first client, your launching customer. In aircraft development this has been done for years. You may not be an aircraft developer. But the concept is useful for many more enterprises.
At least organize your own criticism within the company. That saves a lot of money and possibly much misery. This criticism will significantly increase the quality of your innovation and thus save costs.
Of course you can also manage risks through a clever marketing organization. But more about that in my 5th article on marketing in the internet age.
Entrepreneurship is all about taking risks competently in an area where you have understanding. Risks are a given and therefore there is no reason to do nothing.
Cobbler, stick to thy last, so the saying goes. That is true. But the new competency is to dare to see your own business and the market from different angles, in relation to your own abilities. Do not drown in your own expertise and do not be blinded by your tunnel vision.
Risks for companies are not bad in themselves, and also offer opportunities. They keep you and your company alert. You will learn to think ahead and anticipate. The fact that it takes time to learn how to deal with this is a given. On the other hand, you cannot cross a ravine in two steps. An interesting dynamic.
President Eisenhower once said: “Men can’t stand open-end situations”. These wise words are diametrically opposed to the capabilities that we need in the upcoming “risk society“. While so far only a marketer and entrepreneur should have the capability to deal with uncertainty and risk adequately, this property is now essential for everyone. And don’t be afraid to take if a big step if it is obvious you should. Finally, you cannot cross a ravine in two small steps.
The lesson: If you keep seeing the world from the same perspective, in essence, nothing changes.
Welcome to the risk society!