Strategy but for Agencies: Shaping Markets
I’ve talked about the way that established mental models can blind us to possibilities when doing strategy. We diligently apply logical reasoning to the facts within the framework we use to make sense of them, and we arrive at perfectly sensible strategic conclusions. But because we accepted that framework unquestioningly to begin with, there was never any chance that our logical reasoning would lead us to certain options.
One of the most common instances of this involves taking the existing market at face value. When we do strategy, we follow these initial steps:
Confirm our objectives
Gather relevant information
Organise the relevant information into one or more frameworks
Analyse the information to determine the best course of action
In colour-by-numbers marketing strategy, this plays out very simply (which is not to say that it doesn’t require significant effort).
Our objective is increased market share.
Relevant information is the three Cs – what does our Company have, what do the Competitors offer, what do the Customers want?
Organise the information into frameworks like competitive landscapes and value proposition canvases.
Triangulate the biggest Customer desires against the gaps left by the Competition in light of what the Company’s actual and potential strengths are.
One unquestioned assumption sitting amongst this perfectly sensible method is that the customers’ desires are an external environmental factor, to be understood but ultimately outside of the business’s control.
There are three relevant facts here:
Customer desires change over time.
Customers don’t necessarily know what they want or could want.
Customer desires can be influenced by business activities.
Many darling case studies of business success revolve around these facts, which are oft-repeated by seldom applied.
Henry Ford famously said that if he had asked customers what they wanted, they would have said “faster horses”. Steve Jobs was another firm believer that customers had a poor idea of what they wanted – that his job was to envision what they could have and let them catch up once it was available to them.
Similarly, these points are the underlying premises of Blue Ocean strategy. The basic idea is that there are established competitive markets where many established businesses are fighting over the same customers – like sharks all eating the same food, leaving a bloody Red Ocean. So an option is available to find new virgin waters, Blue Oceans where there are no competitors.
A classic example is Cirque de Soleil – elevating the circus above being for kids and creating a whole new kind of premium adult entertainment.
So what could all of this mean for the strategy of an agency? Well, without trying to get too radical, one option on the table is to actively foster demand for a particular kind of marketing service which would be untenable if we took the market at face value as a fixed fact.
There are plenty of niche marketing approaches with relatively low interest from clients. For me, most of the ones that spring to mind were briefly popular fads in the past and have since declined, but perhaps that’s because I’m not putting much effort into thinking of possibilities.
Guerrilla marketing
Experiential marketing
Gamification
Direct mail
Product placement
Those are just a few examples. And sure, it’s not like none of them are happening any more. Akcelo did that great experiential Spider-man promo in Sydney last year:
In addition to the installation, they had paid actors wandering around playing the parts of NYPD officers, in character and engaging with the public.
And direct mail is still used in various categories, including non-profit fundraising, to some good effect. Etc. These tactics aren’t non-existent.
But overall demand for these kinds of marketing is relatively low, and going just by the numbers, an agency would probably be put off pursuing any of them as a niche specialisation.
So how would an agency profitably adopt one of these apparently unappealing specialisations? They would have two marketing jobs:
Market the specialisation itself
Market itself as the specialist
From a business-objective perspective, the agency would probably want to benchmark client demand for the niche marketing approach – survey relevant decision-makers on their perception of the effectiveness of the niche and what percentage of their next annual marketing budget they expect to be allocated to it (which could well be zero).
That’s the starting point. From there, the agency would need to shift those dials. Produce white papers on the underlying psychology or effectiveness of the approaches. Create or engage thought leaders to deliver webinars and seminars extolling the virtues of the approaches. Invest in PR’ing successful case studies. And so on.
Perhaps partner with competing agencies who include the niche in their services. Partner with competitors? Yes, another traditionally unthinkable thought, but the objective here is to grow a pie that most players are ignoring – if some competitors get a few pieces of that pie too, who cares?
At the same time, you still have the classic strategy tasks to attend to. How can you build a defensible advantage in this market that you’re actively growing?
Agency brand obviously plays a part here – if the agency is synonymous with the niche service, competitors will be playing catch-up later on if the niche demand grows enough to get their attention.
Development of specialised intangible and tangible assets – ways of working, intellectual property, networks of relationships, bespoke software platforms, etc. What’s appropriate will depend on the specialisation.
Strategically, the goal is to grow demand beyond the current capacity of the market, while building a sustainable competitive advantage over future competitors who start trying to meet the demand once it’s substantial enough to be appealing. If the strategy really succeeds, competitors won’t even bother trying, because even though the appeal has grown, you’ve simultaneously increased the investment required to compete enough that it doesn’t make good business sense to take you on in the niche.
That’s the classic competitive strategy approach to the situation. Another one, hinted at above, and also requiring a step outside of traditional thinking, is to cooperate with a set of competitors to grow the size of the pie for all of you. A trade-off is involved – by sharing demand with competitors, your own share is reduced. But the objective of your business is sustainable return on equity, not outcompeting others for its own sake. 40% of $50 million is more than 90% of $10 million. If cooperation and coordination can achieve the former and short-sighted competitiveness leads to the latter, then working with rather than against competitors makes better business sense.
But remember, you’ll all want to be building those barriers to entry into your emerging strategic group.
I think I’ve said this before – I’m a little wary of Blue Ocean strategy. It’s one of those approaches which promises the world and appealingly sidesteps the difficult tasks of classic competitive strategy – actually doing the hard work of finding ways to offer better value to customers than competitors are.
It’s analogous to the appeal of things like paleo diets or 5-2 fasting diets. “Oh hey, there’s actually this shortcut to your weight-loss goals that don’t require moderating caloric intake and going out and doing some exercise.” A lot of marketing fads are like that. Similar also to what I used to call “Dollar Shave Club Syndrome”.
This one entertainingly surreal and very low-budget video launched Dollar Shave Club into an 8% share of the US razor market. And for a while, every second client out there seemed to be saying, “Why do you need a big production budget? These guys did it with like $5k.” (The business has subsequently foundered, as it turns out customers actually aren’t enthused enough about direct-order razors.)
There are always going to be these fads and outliers that briefly promise an escape from the hard and expensive work of doing business.
That said, both Blue Ocean strategies and strategies that involve directly influencing market demand can be valid. They’re not for every business, but they’re also not for no businesses.
For agencies battling for profitability against all of the Five Forces, there may be opportunities for successful niche strategies that both create and defensibly own demand for particular marketing services.