As a marketing executive, are you on the lookout for new market entrants?
New market forces and entrants can potentially destroy your business model—just ask anyone competing with Google.
From adding capabilities to search for airline flights, to building an online classifieds site, to getting into radio (and maybe TV) advertising, and even creating a Wi-Fi service in San Francisco, Google has its nose in just about everybody's business. Google, however, is just one example of a competitor that can emerge from left field and steal business from companies like Craigslist, Expedia, or any of the large telecommunication companies.
Marketing intertwines with strategy and—in some progressive companies—drives it. The role of any marketing executive is not only to understand the 4Ps but also to have a thorough understanding of competitive and market landscapes. But many marketing executives get caught in their functional roles (events, field or product marketing, or whatever) and lose focus on what the role of marketing is: to help drive business strategy.
A key responsibility of a well-rounded marketing executive—whether in industry, product, market communications, or the like—is to provide direction to business leaders regarding trends, white space, and best areas in which to compete or avoid. Marketers need to constantly examine the landscape and have a keen understanding of the competitive, social, governmental, and economic forces that drive new market entrants or exits.
The goal for a marketer, then, is to anticipate key obstacles to achieving a company's objectives and identify means to circumvent them.
Some industries are seeing rapid upheaval while others are reaching a climactic breaking point.
In 2005, the communications industry saw both SBC and Verizon spend billions of dollars to stay competitive in the broadband race. A recent Business Week article titled "Rewired and Ready for Combat" details the battles of both SBC and Verizon in fighting stalwarts like cable companies and fending off "new market entrants" like Vonage (VoIP), Google, Yahoo, or Skype Technologies (recently acquired by eBay).
The battle for market share and dominance in the communications industry was widely predicted. For example, the market for long distance had been in steep decline and industry consolidation among players was a foregone conclusion (evidenced by the recent purchase of AT&T by SBC, and MCI by Verizon).
But what communications executive, five years ago, could have predicted the rise of Internet technologies in wiping out most of the value of hard and fixed assets like phone lines? Even a potential upstart technology like VoIP was supposed to stay in its tidy little corporate box, with only large corporations able to take advantage of the technology with expensive phone equipment.
Yet now, through Vonage and a broadband modem, any home user can make inexpensive calls for half the price of regular landline service. And with a simple computer, headset/microphone, and the Skype software program, now anyone in the world can make phone calls to other Skype users for free.
Certainly, market turmoil is expected in high tech and communications, but such staid industries like healthcare should be immune—right?
Not quite. Healthcare is one industry getting a second look from marketing and corporate strategists. With healthcare costs reaching double digits year over year and becoming a larger portion of the United States gross domestic product (GDP), something has to give. In fact, for those watching, market trends have never been clearer.
The rise of consumerism, importance of patient safety, the need for adoption of IT in the hospital setting, and massive cost increases in the healthcare industry all point to an industry on the cusp of change. One dot-com throwback, Steve Case of AOL fame, seeks to capitalize on these trends.
Infusing some of his personal bounty from the AOL-Time Warner merger, Case aims to take advantage of the consumerism trend through his startup, Revolution Group. According to a Wall Street Journal article, "Former AOL Chief Seeks Health-Care Revolution," Case argues the way to fix the healthcare system is to put consumers first.
Through a series of investments, Case is assembling companies to help empower consumers to make better choices when considering the breadth of healthcare options. An online health portal from Revolution Group will help patients schedule appointments and track health spending, and a search function will assist patients in finding support groups for certain conditions. Case is designing a one-stop shop for the patient.
Is there anything revolutionary about Case's investments? Should healthcare payers and providers quake with fear knowing Steve Case is aiming to tackle problems decades in the making?
No, but perhaps hospitals and insurers should have him on the competitive radar screen since he has an ample investment purse and a track record of shaking up an industry.
While Case's investments are certainly high profile, they are just one example of a potential "new market entrant" that can one day change the healthcare industry in a profound way.
In fact, the barriers to entry and exit are falling. It used to be that economies of scale were a large barrier to entry. Carmakers, like GM, with their manufacturing prowess, capital base, and wide distribution network were strong competitors—effectively blocking entry into the market for smaller automakers. Indeed, for a time, the big three automakers created and dominated niches like sports cars and minivans.
But more nimble and flexible competitors, starting with the Japanese in the early 1970s, began encroaching on these market segments. Toyota is now pushing GM for total market leadership; the edge that companies like Chrysler have in the minivan category continues to slip. Furthermore, Chinese cars might soon hit U.S. shores in quantities that will eat away at the market share of the Big Three carmakers.
Economies of scale—with, in some instances, the associated legacy costs—are sometimes more of a market hindrance than help. No further proof is needed than the airline industry, which has struggled with more nimble competitors like AirTran, Southwest, and Jet Blue.
In other words: there is no industry safe from new market entrants. Technologies, social contexts, economic, political, and governmental regulatory forces are constantly changing the environment. Sometimes, the largest competitor of a company might be on the horizon, and it is probably not who management thinks it is going to be. Ten years ago, for example, would any music executive have thought Apple would be a huge player in music distribution?
The timeframe for market changes once was measured in years. To borrow a phrase from Thomas Friedman, the world was not flat, and companies had a much larger margin of error if they made mistakes in distribution, marketing or operations.
Today, however, such errors can be the difference between a terrific quarter and a death spiral. Similar to the college cornerback who upon entering the NFL finds out "things move faster here," so too has the marketplace changed. With globalization, the window for error shrinks daily.
The Role of Marketing
To be sure, many companies have marketing managers who do not have adequate knowledge of their current market let alone the ability to focus on indirect market challengers.
That needs to change. The marketing functions within many corporations are widely siloed with functional expertise in events, field marketing, product marketing, or analyst-press relations. Very few companies have a competitive intelligence function and fewer have experts dedicated to current or future competitors.
Whether your company has a competitive-market-intelligence team or not, it is the job of all marketing executives in the company to have a firm grasp of the market in which they compete. To reiterate: A key responsibility of all marketing executives whether in industry, product, communications, or similar function, is to provide direction to business leaders regarding trends, white space, and best areas in which to compete or avoid. For marketing executives, this responsibility simply cannot be abrogated.
Jack Welch, in his recent book Winning, describes an ability that all good executives should possess: "peering around the corner." Managers, he says, should ask themselves the following questions:
- What scares you most about the year ahead?
- What are the one or two things a competitor could do to nail you?
- What new products could competitors launch that could change the game?
- What M&A deals would knock you off your feet?
Jack Welch is calling on all executives—marketing or not—to think. Really think. Tracking new market entrants is not something that should be undertaken haphazardly, especially when a new market entrant can effectively put your company into bankruptcy. Indeed, marketing executives need a solid framework for tracking new market entrants and "seeing around the corner."
The first phase in this proposed framework is to identify and aggregate information on market forces. In the second phase, work teams attempt to discern patterns and prioritize where they should expend the most effort.
Framework Phase 1: Identify Market Forces and Aggregate Information
In examining market forces (social, economic, technology, government-regulatory, political), it is necessary to realize that observing and tracking these market forces is easier said than done. Many times, the models created require a multi-year effort.
That said, companies can still track key indicators to illuminate a more complete market landscape. Here are some simple examples of key indicators, which, of course, vary by industry:
- Economic: real GDP, consumer price index (CPI), federal funds rate, crude oil price, jobless rate, housing, corporate profit trends
- Technology: outsourcing trends, explosion of devices at the edge (RFID, mobility, etc.), number of patents issued (e.g., biotech), technology convergence, broadband adoption, etc.
- Regulatory: examine regulations of the past such as Sarbanes-Oxley, Health Insurance Portability and Accountability Act (HIPAA), Medicare Modernization Act of 2003, and those regulations now pending in Congress
- Social trends: lifestyles, fashion, rise of social networks such as MySpace.com or Facebook, culture shifts, etc.
- Geopolitical: rise of China, Iraq war, Russia, India-Pakistan, terrorism, etc.
Of course, key indicators tracked will vary by company, industry, and even country. Senior management, along with marketing professionals, should agree on which indicators are most relevant to their respective businesses.
Sources for key indicators vary. But much of the data is in the public domain, such as quarterly and annual reports (in the United States) for example, or it can obtained via paid informational sources (Hoovers, OneSource, LexisNexis).
Another compelling source for key indicators is the current customer base of a company. Customers are probably tracking key indicators most important to them. If they are not, they probably have a good feel for their own marketplace and a pulse for potential new market entrants.
Some of the data gleaned from customers might be quantitative. But most probably it will be qualitative—either "war stories" or other anecdotal information. Qualitative information is no less valuable than quantitative, especially when a customer might be working with multiple vendors and listening to the sales pitches of new market entrants.
Another way of discovering potential new market entrants is to ask industry influencers (scientists, academics, technical, governmental experts) to present a lecture to senior management regarding trends they are observing. Many times, these experts are already "trend watching" and may have already completed the research that a company needs to get a pulse on new market entrants.
Once key indicators are identified, the marketing executive needs to aggregate the information. Through accumulation of social, economic, technology, government-regulatory, competitive, and political indicators, the marketing executive should now have a better picture now of the marketplace in which he or she competes.
Framework Phase 2: Brainstorm and Prioritize
There is only so much time and talent to devote to analyzing potential new market entrants. The goal of Phase 1 is information gathering. The goal of Phase 2 is to brainstorm and prioritize potential threats.
In this session, the marketer leads a brainstorming committee of no more than 10 or 12 marketing, sales, operations, and engineering executives, for example. It is important to assemble a cross-functional committee to get unique perspectives that challenge the thinking of the assembled team.
Participants in this brainstorming session should be encouraged to "think the unthinkable." This means that executives should not force any constraints on their thinking.
In some instances, the "unthinkable" is a known probability (e.g., the 5 percent chance that a category-four storm would wipe out New Orleans). However, in other instances, the unthinkable is just that—something so off the wall that it is laughable. As Jack Welch says, "What one to two M&A deals would knock you off your feet?" In a session like this, there are no dumb questions, and all outlandish scenarios should be considered.
Throughout the day, the team should attempt to use whiteboards, post-it notes on the wall, or some large visual to storyboard and map potential new market entrants so that the entire team can see the big picture.
At the end of the workday for Phase 2, probabilities should be assigned to each potential scenario, and then executives can rank/order based on the likelihood of each scenario being played out. Executive teams will probably have 10-15 scenarios at the end of the brainstorm and prioritize phase.
Framework Phase 3: Choose Options
It is impossible to prepare for an infinite number of potential new market entrants. In fact, most companies pick 3-4 potential scenarios and consider those. Having a cross-functional team of executives, led by marketing, to choose new market-entrant scenarios based on the best available data is critical.
When choosing options from the list of 10 to 15, it is important for all executives participating in the exercise to take step back and stop the process for a moment. Before choosing the top three or four scenarios, teams should consider what might be missing.
William H Swanson, CEO of Raytheon, calls this Rule Number Four in his booklet "Unwritten Rules of Management." He notes that executives should always look for "what is missing, (since) many know what to improve what's there, but few can see what isn't there."
Sometimes, in the rush to put forward the best options, the simplest and most obvious options are overlooked. A fresh new day and a strong pot of coffee can sometimes assist the team in discovering overlooked scenarios. This simple exercise of stepping back and attempting to "see what's missing" can sometimes produce a breakthrough.
The end result of locking a team of 10 people in a room for a day and analyzing the assembled data should be 3-4 potential competitors that could affect the business in the near term. The scenarios chosen should include countermeasures to blunt the effectiveness of the new market entrants.
Framework Phase 4: Guide Discussions
Often, direction regarding which potential competitors to profile comes from the senior executive team. In other words, a CEO or similar officer has a question regarding a competitor and it trickles down to be researched by the marketing function.
But, through this new market entrant exercise, the marketing and cross-functional team now offers to guide a discussion of the list of scenarios with senior managers. The audience for these sessions should include the Chief Risk Officer and his/her staff in a larger company (and in a smaller company might include the CEO).
These meetings with senior management are not meant to be a presentation of "fact" to the senior executive team. The best approach is a thoughtful discussion of the key market forces (social, economic, technology, regulatory, political), the key indicators (data), prioritization of potential new market entrants (supporting analysis), and three or four possible scenarios and countermeasures.
For such a conversation with senior management, the aim is to present the findings on new market entrants as "open for discussion." It is important to have key facts, figures, statistics, and analysis to support the chosen scenarios. But, at the end of the day, senior executives should realize that the future is, needless to say, open to interpretation. The best example of that, of course, was the Oracle at Delphi.
Framework Phase 5: Track/Measure Results
Only time will tell whether the new market entrants selected by the cross-functional team emerge as competitive threats. It helps to have a process for tracking the analysis and potential scenarios discussed, whether by visual map, storyboard in a conference room, or electronic dashboard. It is also important to have documentation of the entire process by which the team identified the new market entrants—so that a new team can engage in the same exercise in the near future.
When seeking to forecast potential new market entrants, there are many models, quantitative to qualitative, that can be used. Some analysts use a combination to gain the most accurate forecasts, as author John Vanston recommends. He notes that "the value of a forecast depends not on its specific accuracy, but rather on the extent to which it contributes to better decision making."
The Questioning Mind
As detailed in a recent Harvard Business Review article titled "Hiring for Smarts," author Justin Menkes says intelligent leaders are those who "critically examine the accuracy of underlying assumptions, anticipate obstacles to achieving their objectives and identify sensible means to circumvent them." Critical thinking, then, is an important skill when attempting to forecast new market entrants with some degree of accuracy.
The well-rounded marketing executive, when seeking new market entrants, challenges assumptions, however ingrained those assumptions are. Those "unthinkable situations" are the situations that most often emerge. Take, for example, the emergence of Google or Craigslist as challengers to the classified ad market for newspapers. Newspaper executives are now in catch-up mode to establish their own online classified presence.
When it comes to seeking new market entrants, there are no wrong answers. In a Fortune article titled "Throw It at the Wall and See If It Sticks," Anthony Creed, psychologist and full-time developer of new ideas at Intuit, says, "It's more important to get the stupidest idea out there and build on it, than not to have it in the first place."
The marketing executive adopting the questioning mind acts as a freelance reporter with some knowledge of the industry, but impartial to any player. J. Michael Stogner, a project management consultant, reminds us that the critical thinking executive asks the stupid questions, challenges ingrained assumptions, and does not take anything for granted. New market entrants are right around the corner, and it is the questioning mind that finds them.
The Well-Rounded Executive
The beginning of this article argued that it is the role of every well-rounded marketer, no matter what the specific job code, to be on the lookout for competitors and market forces that could turn a current business model upside down.
Leading marketing executives will understand future market dynamics and create opportunities and obstacles in the way they do business, making competitors respond reactively instead of proactively.
The well-rounded marketing executive has a pulse on the marketplace, is constantly seeking new market entrants, has data to support his/her conclusions, and presents analyses to senior management to enable better decision making. Critical thinking and a questioning mindset are critical components of the skill set needed to succeed in the future.
Note: Special thanks to Dean Davidson, head of Competitive Market Intelligence at EDS, for his input for this article.
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