B2B Brand Management Basics - Part 1

 

A few weeks ago, I published a post that asked, "Is B2B Brand Marketing Making a Comeback?" My post was prompted by the release of Dentsu's 2024 update to its Superpowers Index study. 

The 2024 update was based on interviews with 3,528 business buyers. Dentsu provided the interviewed buyers 30 decision drivers and asked them to rate the drivers based on how much influence each driver had on their buying decisions.

The three most influential decision drivers identified by the buyers were all characterized by Dentsu as personal drivers, and the firm noted that 2024 was the first time personal decision drivers outweighed functional drivers in overall importance. This finding led Dentsu to assert, "Brand has never been more important in B2B."

Other recent studies have also highlighted the importance of having a strong B2B brand. For example, Bain & Co. and Google surveyed 1,208 business buyers at U.S. companies in 2022. From 80% to 90% of the respondents said they had a set of vendors in mind before they did any research, and 90% of those respondents said they ultimately chose a vendor on their day-one list.

Therese Parkes with Google wrote that this behavior "means brand building and remaining top of mind during this process is essential." 

The Great Debate

The relative importance of brand building vs. demand generation (a/k/a "performance marketing") has been the subject of a long-running debate in the B2B marketing community. 

For nearly two decades, most B2B marketers have been primarily focused on improving the performance of their demand generation programs., and most of the B2B marketing literature published during that period was also focused on demand gen marketing technologies and techniques.

But despite this lopsided focus, interest in brand building has recently been increasing. Over the past couple of years, I've noticed a growing number of articles, blog/LinkedIn posts, and other forms of content addressing the importance of having a strong brand in B2B.

This increased interest has been fueled by several factors. A growing number of B2B marketers have recognized that business buying decisions are usually driven as much by emotional and psychological factors as by rational thinking processes.

B2B marketers are also recognizing that a strong brand can improve the performance of demand generation marketing programs, reduce the price sensitivity of business buyers, and strengthen customer loyalty.

The Birth of Brand Management

Most of what we've learned about building strong brands originated in B2C companies. In the 1930s, Proctor & Gamble invented the business function that would come to be called brand management, and by the late 1950s, brand management practices had been widely adopted by U.S. consumer package goods (CPG) companies.

In 1974, the Association of National Advertisers estimated that 85% of U.S. CPG companies (and 93% of those with annual advertising expenditures of more than $10 million) had implemented brand management functions and practices. ("Lessons from nearly a century of the brand management system")

Marketing is a recognized academic discipline that's been widely taught at the university level for decades. However, Professor Kimberly A. Whitler at the University of Virginia's Darden School of Business argues that there's a "theory-doing gap" in marketing education.

In her book, Positioning for Advantage, Professor Whitler wrote:

"Most undergraduate courses tend to be theory or concept based, with few using tools or workshops to teach students how to create, build, or construct successful brands. Consequently, the vast majority of marketers discover what marketing is, and how to create marketing strategies and plans, from their employers on the job."

In her research, Professor Whitler found that almost all of the companies that excel at developing C-level marketing leaders were from the CPG or retailing industry. She offered an explanation for this finding in Positioning for Advantage:

"What do these developers of C-level marketing talent have in common? They all have systematic and science-based systems, processes, and approaches to building superior brands . . . The marketers in these firms are typically profit and loss (P&L) leaders in their firms and play an upstream role, often being expected to lead the development of the strategic plans that will drive growth. This differs from the nearly 50 percent of companies that treat marketing as only a sales activity existing just to commercialize the products that other firm leaders create."

Brand Management for B2B

Given the B2C origin and evolution of brand management, it's not surprising that many B2B marketers don't have extensive experience with the discipline. However, it's clear that brand building is becoming an increasingly vital aspect of B2B marketing success.

I'm planning to publish a short series of posts discussing a few of the basic concepts and principles of brand management. These posts will barely scratch the surface of a complex topic, but I hope they will encourage B2B marketers to learn more.

Image courtesy of EdgeThreeSixty via Flickr (CC).

It's Time to Change How We Think About Content Marketing

Last month, Content Marketing Institute and MarketingProfs released selected findings from their 15th annual content marketing survey. This survey was conducted between June 25 and August 16, 2024, and generated 980 responses from B2B marketers located (mostly) in North America. 

The annual CMI/MarketingProfs survey has been one of my go-to resources for more than a decade. As with earlier editions of the research, the latest survey provides valuable insights regarding how B2B companies are doing content marketing and what practices are critical to success.

I've been a long-time advocate of content marketing. I've published over 200 posts about content marketing since I launched this blog in 2010. Over my 20-year career in marketing, I've watched content marketing evolve from a niche marketing technique to a core component of marketing at most B2B and B2C companies.

Given its widespread adoption and proven strengths, it might seem odd to suggest that the time has come for marketers to think differently about content marketing. But a change is needed and, in fact, is overdue.

I'm not suggesting that content-focused marketing is no longer effective, but I am arguing that it's time to stop treating content marketing as a separate marketing discipline and start focusing on how to use the rich diversity of content to support marketing objectives that will drive strategic business outcomes.

A Quick Look at Content Marketing Evolution

The Gartner hype cycle was developed to track the maturity of emerging technologies, but it is also often used to describe the evolution of marketing techniques and practices. In this framework, a new marketing practice usually receives a huge amount of hype when it first appears, which leads to the spread of inflated expectations for the practice.

When a practice fails to meet these unreasonable expectations, many marketers become disillusioned with it, and some abandon it entirely. In time, however, some marketers develop more realistic expectations for the practice and begin to use it productively.

We also often see a second pattern in the evolution of marketing practices that runs alongside the Gartner hype cycle. When a new marketing practice begins to gain significant attention, a gaggle of "experts" soon appears to help companies adopt and use the practice.

These experts usually describe the practice as a new and distinct marketing discipline. Some argue that the new practice should replace other marketing methods and that the "old" rules of marketing no longer apply. Over time, however, astute marketers recognize that the fundamental objectives of marketing haven't changed, and they begin to view the new practice as a tool for achieving those objectives.

This pattern is clearly evident in the evolution of content marketing. When its popularity and use began to grow, we quickly came to view content marketing as a distinct marketing discipline. Overall, this was good because it fostered the rapid development of a substantial body of knowledge about how to do content marketing effectively. The downside of this approach is that it made it easy to view content marketing as an end unto itself.

The essence of content marketing is using informative or entertaining content to, as CMI put it, "attract and retain a clearly defined audience - and, ultimately, to drive profitable customer action." Such content is the "fuel" for marketing programs that are designed to achieve a variety of marketing objectives.

Most strategic marketing objectives - such as revenue growth and increased market share - have remained largely unchanged for many years. Therefore, what we now call content marketing is about using a distinctive kind of content to achieve long-standing marketing goals.

Why the Different Way of Thinking Matters

Source:  Pat Pilon via Flickr

Focusing on "content as a vehicle for achieving marketing objectives" rather than on "content marketing" may seem like an inconsequential difference, but it has meaningful implications. For one thing, it should inform how we approach marketing performance measurement.

Measuring the performance of content marketing programs has been a hot topic for several years, and numerous marketing pundits have offered measurement frameworks for this purpose. However, most companies should not focus on measuring the performance of content marketing per se.

In virtually all B2B companies, marketing will be responsible for three core types of marketing communication programs - brand building programs, demand generation programs, and customer retention programs. In some cases, marketing is also responsible for developing content for the company's sales enablement program.

These programs are the mechanisms through which marketing achieves (or doesn't achieve) its strategic objectives, and the performance of these programs is what companies should measure. Content is an essential element in all these programs, but it is only one of several factors that will determine program success.

Therefore, metrics that focus only on content performance won't adequately measure program performance. A good marketing performance measurement system will include content-related metrics, but the primary metrics should be focused on the outcomes that each type of program is designed to produce and, ultimately, on the business impacts of those programs.

The Most Profound Marketing Practices Disappear

In a 1991 article for Scientific American, the late Mark Weiser, then the chief technology officer at Xerox's Palo Alto Research Center wrote:  "The most profound technologies are those that disappear. They weave themselves into the fabric of everyday life until they are indistinguishable from it."

Content marketing has been one of the most profound marketing developments of the past two decades. The development, management, and dissemination of content have become essential marketing competencies. Content marketing has been assimilated into the fabric of marketing and is simply the way marketing is now done. 

Top image courtesy of The Wild Blogger via Flickr (CC).

"No Decisions" - Why They Happen and What You Can Do About Them

The quest to understand how people make buying decisions has probably consumed more brainpower than any other topic in marketing and sales. In B2B, we've also devoted a lot of time and energy to diagnosing why some potential customers fail to make any purchase after conducting a thorough buying process.

Such outcomes are usually called no decisions, and several studies have shown that B2B companies lose more sales to no decisions than to competitors. In the research for their 2022 book, The JOLT Effect, Matthew Dixon and Ted McKenna found that between 40% and 60% of prospective sales result in no decisions.

Rational vs. Non-Rational No Decisions

Some no decisions are entirely rational. For example, a potential customer may decide not to buy because their current solution is superior or equivalent to the proposed alternatives. In such cases, the alternatives don't provide enough additional value to justify a change.

However, many no decisions can't be explained on a rational basis. These are situations where the potential customer has recognized the existence of an issue or challenge that needs to be addressed, the fit and business case for the proposed solution are strong, and the price of the proposed solution is affordable. But despite these circumstances, the potential customer decides not to buy.

Such "non-rational" no decisions point to the role of human emotion and psychology in B2B buying. An impressive body of research has shown that many B2B buying decisions are driven more by emotional and psychological factors than by logic.

So, how do emotions and psychological factors drive no decisions? To answer this question, the starting point is understanding the power and prevalence of fear in B2B buying.

How Fear Drives No Decisions

More than a decade ago, Enquiro conducted a landmark study of the B2B buying process. The research used several methods to gather data from almost 4,000 individuals involved in B2B buying. A core finding of the study was that B2B buying is not a rational process, but rather an "emotional, heuristic process" in which fear plays a leading role.

Gord Hotchkiss, the CEO of Enquiro, discussed the results of the study in The Buyersphere Project, where he described the role of fear in B2B buying in unequivocal terms. He wrote:

"B2B buying decisions are usually driven by one emotion - fear. Specifically, B2B buying is all about minimizing fear by eliminating risk. And in that, there are two distinct types of risk. There is organizational risk, typically formalized and dealt with in various procurement processes and then there is personal risk, which is unstated but remains a huge influencing factor in organizational buying."

The personal risk that is present at some level in every B2B buying situation is the risk that the decision-maker will be blamed if the purchase doesn't deliver the promised benefits. So, fear of blame is a hidden force in every B2B buying situation.

Personal risk often causes business buyers to practice what psychologist Gerd Gigerenzer has called defensive decision-making.*

Defensive decision-making occurs when a business buyer doesn't choose the option that would probably produce the most benefits for his or her company, but instead chooses the option that will protect him or her in case something goes wrong.

Defensive decision-making can easily lead business buyers to view their status quo as the safest option, and that results in a no decision.

A Strong Brand Reduces No Decisions

You will never completely eliminate no decisions. As I noted earlier, some no decisions are completely rational. Sometimes, your offering won't be significantly better than what your prospect is already using or doing. Your objective should be to identify these situations early in the sales process so that you don't waste time pursuing a deal you are unlikely to win.

Reducing the number of non-rational no decisions is challenging because, by definition, you are dealing with emotional and psychological factors that are difficult to identify and usually differ for every buyer.

In The JOLT Effect, Dixon and McKenna lay out a four-pronged approach that sales reps can use to reduce no decisions. The authors argue that high-performing reps look for ways to "take risk off the table" (the "T" in JOLT). Examples of these tactics include free trials, opt-out clauses in contracts, and performance guarantees.

One of the most effective ways to reduce non-rational no decisions is to build and sustain a strong brand presence in the relevant market. A strong brand reduces the level of personal risk associated with choosing your company.

If your company/brand is well-known by the decision-maker's superiors and colleagues, the perceived risk is even lower. This explains the rationale of the quote:  "Nobody ever got fired for buying IBM."

In a recent paper published by The B2B Institute, Rory Sutherland, Vice Chairman of Ogilvy UK and author of Alchemy, described the power of a strong brand to reduce risks:

"A decision to appoint a respected brand is much less reputationally risky than the appointment of an unknown. If you appoint a well-known company to a task and things go wrong, your colleagues are likely to blame the supplier. If you appoint someone obscure, they may blame you."

Advocates of brand marketing often assert that building a strong brand will improve the performance of demand generation programs, make buyers more willing to pay a premium price, and increase customer loyalty. Unfortunately, it's not usually clear why a strong brand delivers these benefits. One likely reason is that buyers are apt to view a strong brand as the safest choice.

*Gerd Gigerenzer is director emeritus at the Max Planck Institute for Human Development in Berlin, and director of the Harding Center for Risk Literacy at the University of Potsdam. For a more in-depth discussion of defensive decision-making, see his book, Risk Savvy:  How to Make Good Decisions.

Image courtesy of Dan Moyle via Flickr (CC).

[Research Round-Up] New Insights on B2B Marketing and the World's Most Valuable Brands

 (This month's Research Round-Up features an overview of the latest "State of B2B Pipeline Growth" survey by Pipeline360 and Demand Metric and a discussion of Interbrand's 2024 ranking of the world's most valuable brands.)

H2 2024 State of B2B Pipeline Growth by Pipeline360 and Demand Metric

Source:  Pipeline360/Demand Metric

• Based on an online survey of 424 marketers with B2B (47%) and B2B/B2C (53%) companies in the United States (56%) and the United Kingdom (44%)
• 73% of the respondents were at the manager or director level, and 21% described their role as "CMO/head of marketing"
• 63% of the U.S. respondents were with companies having annual revenue of less than $250 million; 69% of the UK respondents were with companies having annual revenue of 200 million or less (British Pounds)
• The survey was conducted in July 2024

The objective of this study was to examine "the latest challenges, opportunities, and areas of interest that marketers are facing, including:  channel usage, sales and marketing alignment, generative AI usage, sales cycle length, and data privacy, all from a B2B perspective."

Here are some of the key findings from the survey.

Top challenges - The top three challenges identified by survey respondents were:

• Budget/headcount/resource cuts (48%)
• Economic slowdown (46%)
• Sales and marketing alignment (44%)

Marketing budget - 52% of the respondents said their 2024 marketing budget was slightly or significantly higher compared to 2023.

Marketing success - Over half (53%) of the respondents said they were meeting their goals for this year to a great or very great extent.

Sales/marketing alignment - 75% of the respondents said their sales and marketing teams were mostly or completely aligned, and 62% said the KPIs and/or objectives used by their sales and marketing teams significantly or completely overlap. Almost three-quarters (73%) of the respondents who reported complete sales and marketing alignment also said they were meeting their goals so far this year.

Generative AI - 85% of the survey respondents said they were using generative AI in one or more ways. The four uses most frequently identified by respondents were:

• To develop content (51%)
• To brainstorm new topics (45%)
• To personalize content (41%)
• To summarize meetings (41%)

This survey produced numerous other interesting findings, and I recommend you take a look at the full report.

Best Global Brands by Interbrand

Source:  Interbrand

Earlier this month, Interbrand, the global brand consultancy, published its 2024 ranking of the 100 most valuable global brands. Interbrand has been analyzing the value of large global brands for 25 years.

Interbrand's valuation methodology includes three key components.

• Financial Analysis - This component measures the economic profit of the brand. Economic profit is defined as the after-tax operating profit of the brand less a charge for the capital required to produce the brand's revenue and margin.

• Role of Brand - This component measures the portion of the purchase decision attributable to the brand as opposed to factors such as convenience, price, or product features.

• Brand Strength - This component measures the ability of the brand to earn customer loyalty and, therefore, create sustainable demand and profit in the future.

The five most valuable global brands in the 2024 Interbrand ranking were:

• Apple ($488.9 billion)
• Microsoft ($352.5 billion)
• Amazon ($298.1 billion)
• Google ($291.3 billion)
• Samsung ($100.8 billion)

In addition to the brand rankings, Interbrand's report includes several thought-provoking ideas regarding the role of brand as a driver of business growth. Interbrand noted that its research has shown that excessive reliance on short-term performance marketing tactics is detrimental to business growth. The report states:

"Utilizing our Best Global Brands data, we see that an increased focus on operational efficiency and short-term performance tactics over mid-term and long-term brand potential has cost the world's most valuable brands $3.5 trillion USD in cumulative brand value since we started our study. This equates to approximately $200 billion of lost revenue opportunity over the past 12 months."

Interbrand also argued that today's most successful companies take a fundamentally different approach to driving growth. Rather than finding customers for their products or services, they develop a deep understanding of customer needs and desires, and then build competencies to fulfill those needs and desires. Again, from the report:

"Now and next, the world's most successful companies start not with product, but with brand as their critical growth asset and engine. They use the utility and equity in their brand to drive exponential growth in new spaces, while continuing to capitalize on existing incremental sector gains."

Some of Interbrand's ideas are unconventional, and you may or may not agree with them or see their relevance for your business. Whatever the case, the Interbrand report will be a worthwhile read.

[Book Review] A Pragmatic "How-To" Manual for Revenue Operations

Source:  Kogan Page Limited

The 2023 LinkedIn Jobs on the Rise list identified Head of Revenue Operations (a/k/a Chief Revenue Officer) as the fastest growing job title in the United States. 

In a 2024 survey of operations professionals by Openprise, 35% of the respondents said their company had a formal revenue operations (RevOps) department, and another 32.5% said their company had a functional RevOps team (but not a formal department).

These data points demonstrate that revenue operations has become an important management technique for many B2B companies.

Interest in revenue operations has been increasing because astute business leaders have recognized that the activities of their customer-facing functions (marketing, sales, customer service/customer success, etc.) should be coordinated and managed as components of a larger revenue generation process.

A new book by Sean Lane and Laura Adint - The Revenue Operations Manual:  How to build a high-growth, predictable and scalable business (Kogan Page, 2024) - seeks to provide a blueprint and instruction manual for building a high-performing revenue operations function.

Sean Lane and Laura Adint are well-qualified to write about revenue operations. Lane is a founding partner of BeaconGTM, a consulting firm that works with CEOs and revenue leaders to improve go-to-market execution. He previously spent over five years building the operations teams at Drift.

Laura Adint has 25 years of experience with technology companies and consulting with a specialty in operations. She was the Vice President of Field Operations at Drift, and she also served as the Vice President of Sales and Services Operations and Adaptive Insights.

What's In the Book

The Revenue Operations Manual contains an Introduction and 25 chapters organized in four major parts. Each chapter discusses a vital component of a world-class revenue operations function or an activity or skill that will enable an individual to become a successful revenue operations leader or an effective RevOps team member.

In the Introduction, Lane and Adint define "revenue operations" in terms of the business outcomes they contend the function should be designed to achieve. They write, "Revenue operations transforms siloed, unpredictable businesses into high-achieving, predictable, and scalable revenue machines."

The authors also use the Introduction to roll out what they call "The Revenue Operations Mindset." This mindset consists of six principles that reflect how individuals involved in revenue operations ("Operators") should view their work and role in the business. The six elements of The Revenue Operations Mindset are:

• "Operators are strategic partners, not a support function."
• "Operators focus on outcomes, not inputs."
• "Operators are the perfect blend of strategic and tactical."
• "Operators are lifelong learners and not afraid to be proven wrong."
• "Operators champion their work and are proud of the impact they create."
• "Operators believe in constant, incremental improvements and a 'better, better, never done' approach."

Part One (Chapters 1-3) of the book discusses when it's time for a company to invest in revenue operations and explains what Operators need to know about their company's business and how they can gain that knowledge.

In Part Two (Chapters 4-13), Lane and Adint discuss several key building blocks of a high-performing revenue operations function.

The authors use Part Three (Chapters 14-18) of the book to explain why the revenue operations team must form strong partnerships with the customer-facing functions of the business. They also offer several strategies and tactics the RevOps team can use to build such partnerships.

In Part Four (Chapters 19-25), the authors focus on the revenue operations team itself. They discuss alternative ways to structure the RevOps function in a company and describe the traits and behaviors that good RevOps leaders and team members exhibit and practice.

My Take

The Revenue Operations Manual will be valuable for anyone involved in revenue operations, and it should be required reading for anyone new to the RevOps field. The book is well organized and well written, and the authors' writing style makes the book easy to read, even though it contains an extensive amount of information.

This book was written by practitioners for practitioners. Sean Lane and Laura Adint cover issues that everyone involved in revenue operations will likely confront at some point in their career, and they provide practical advice based on their combined three-plus decades of experience working in several operations leadership roles.

While Lane and Adint stress that revenue operations is "inherently cross-functional" and should encompass the whole customer journey, The Revenue Operations Manual tends to emphasize issues and topics that relate primarily to sales. For example, the authors specifically discuss and provide advice about territory planning and incentive compensation design.

In contrast, the authors give much less attention to marketing-related issues and topics. For example, they don't provide specific advice on improving the productivity of content operations. If you want your revenue operations function to cover the entire revenue generation process, the RevOps team will need to be as involved in marketing operations as they are in sales operations.

One final thought. Regular readers of this blog may remember that I reviewed Revenue Operations by Stephen G. Diorio and Chris H. Hummel a couple of months ago. Diorio and Hummel's approach to the topic of revenue operations differs significantly from the approach embodied in The Revenue Operations Manual.

Both books are excellent, but I found Revenue Operations to be a challenging book to read. I recommend both books, but I suggest you read The Revenue Operations Manual first.

Are Your Revenue Generation Programs Targeting the Right Customers?

 

Source:  Shutterstock

(This post is an edited/updated version of a post I published early last year. With the fourth quarter of 2024 now underway, many B2B marketing and sales leaders will have started developing revenue generation plans for next year. Measuring customer profitability accurately is critical for developing an effective revenue generation strategy. So, this post is particularly relevant now that "planning season" is upon us.)

Key Takeaways

• A growing number of companies are adopting revenue generation programs that treat customers differently based on their perceived value to the company.

• Most companies determine the value of customers based on current revenue and future growth potential, but most don't track customer profitability or use it to judge the value of individual customers.

• The lack of accurate customer profitability information creates a dangerous blind spot. Without it, companies can end up winning business from unprofitable customers.

The Rise of "Account-Based Everything"

The widespread adoption of account-based marketing is one of the landmark developments in B2B marketing of the past two decades. The use of ABM has been growing rapidly since it was introduced by ITSMA in 2003. While the early adopters of ABM were primarily large B2B technology and business services firms, it's now used by a wide variety of B2B companies.

A  few years ago, marketing industry analysts, consultants, and technology vendors began to argue that companies should adopt an account-based approach in other customer-facing business functions, including sales, sales development, and customer success/customer service.

This broader application of account-centered techniques was soon called "account-based everything." ABE (or sometimes ABX) is usually defined as "the coordination of personalized marketing, sales development, sales, and customer success efforts to drive engagement with, and conversion of, a targeted set of accounts." (Gartner)

The most rigorous and thorough discussion of this broader use of account-centric strategies and tactics can be found in Account-Based Growth:  Unlocking Sustainable Value Through Extraordinary Customer Focus by Bev Burgess and Tim Shercliff. In this book, the authors explain how B2B companies can use account-focused strategies and programs to drive profitable revenue growth.

The premise underlying account-based methodologies is that all customers are not created equal. In most B2B companies, a small percentage of customers account for a disproportionate share of the company's total revenue and profit.

The essence of the strategy described in Account-Based Growth is to identify those "vital few" customers, and then design and implement coordinated marketing, sales, customer success/customer service, and executive engagement programs specifically tailored for those high-value customers.

Burgess and Shercliff explain how to identify and prioritize high-value customers, develop effective account business plans, leverage data and technology to gain deep customer insights, and bring about the leadership and cultural changes necessary to succeed with an account-based growth strategy.

Perhaps most importantly, Burgess and Shercliff emphasize that many companies will need to "radically" reallocate marketing, sales, and customer success resources to effectively support an account-based growth strategy. When you adopt this kind of strategy, you are placing a large bet on the growth potential of a relatively small group of customers and prospects.

In the balance of this article, I'll adopt the Burgess/Shercliff terminology and use the term "account-based growth strategy" to refer to a go-to-market approach that involves identifying high-value customers and prospects and designing coordinated marketing, sales, and customer success/customer service programs to manage relationships with those high-value customers and prospects.

Customer Profitability Is "Missing in Action"

Companies that implement an account-based growth strategy segment their customers into multiple "tiers" based on the perceived attractiveness of each customer. Then, they use different marketing, sales, customer success/customer service, and executive engagement techniques for customers in each tier.

In general, companies will invest more time, energy, and financial resources to develop and execute high-touch and highly customized engagement programs for customers in the "top" tier, compared to those in "lower" tiers. This means, of course, that company leaders must determine which customers to place in each tier.

As part of the research for Account-Based Growth, Burgess and Shercliff surveyed 65 B2B companies. Ninety-two percent of the survey respondents reported having some kind of "top account" program.

When the authors asked survey participants what criteria they use to select accounts for their top account program, 87% of the respondents said the future growth potential of the account, and 76% said the current revenue from the account. These were the two most frequently used criteria by a wide margin.

Customer profitability wasn't among the top five selection criteria identified by the survey respondents. In fact, only 45% of the respondents said their company tracks gross profit at the account level, and only 20% reported tracking net profit by account.

This absence of customer profitability information results in an account selection/prioritization process with a major blind spot. As Burgess and Shercliff put it:  "Without this information, decisions about how much to invest in these top accounts and where to allocate resources are being made in the dark."

To make matters worse, many companies that track some form of profit at the account level still aren't getting an accurate picture of customer profitability because the methodology they use to measure customer profitability is flawed.

When you implement an account-based growth strategy, you invest substantially more in some customers than others. It's impossible to make such investment decisions on a sound basis without an accurate view of customer profitability. You can easily find yourself in the unenviable position of successfully winning business from unprofitable customers.

Why Customer Profitability Matters

If all your customers were equally valuable, there would be no reason to implement an account-based growth strategy, and measuring the profitability of individual customers wouldn't be very important. But the reality is that some customers are far more financially valuable to your business than others. There are three main reasons for this value disparity.

The Pervasive Pareto Principle

The 80:20 rule (a/k/a the Pareto Principle) states that 80% of effects come from 20% of causes. One business application of the rule states that, in most companies, 80% of total revenue comes from 20% of the company's customers.

In Account-Based Growth, Burgess and Shercliff argued that the 80:20 rule is nearly ubiquitous, and my experience supports their argument. During my career, I've analyzed sales data from dozens of B2B companies operating in many industries. In most of those companies, I found that the largest 20% of customers accounted for about 80% of total company revenue.

The 80:20 rule has important implications because it is fractal, or at least "fractal-like." By this, I mean that the 80:20 distribution pattern repeats itself as the breadth of data analyzed narrows, like a set of Russian Matryoshka nesting dolls.

To illustrate, the rule states that 80% of a company's revenue comes from 20% of the company's customers, but it further states that 64% of total company revenue (80% of the 80%) comes from only 4% of customers (20% of the 20%).

The implications of this aspect of the rule are profound. Suppose your company has $100 million of annual revenue and 1,000 customers. The 80:20 rule indicates that only 40 of your customers are likely producing about $64 million of your revenue.

When it comes to company profitability, the 80:20 rule doesn't go far enough because the distribution of profit is even more skewed than the distribution of revenue. Companies that accurately measure customer profitability frequently find that all their annual profit comes from a small percentage of their customers. (More about this later.)

The bottom line:  In most companies, a small number of customers have an outsized impact on financial performance.

Customer Profitability Varies Greatly

The second reason for the value disparity is that customer profitability varies greatly. When company leaders measure customer profitability accurately, they frequently find that they're earning a lot of profit on their most profitable customers and sustaining significant losses on their most unprofitable customers.

The following diagram depicts the customer profitability distribution found in many B2B companies. In this diagram, the horizontal axis depicts the percentage of total customers, with customers arranged (left to right) by profitability. The vertical axis represents customer profitability. The horizontal line across the middle of the diagram is the profit breakeven point (in other words, $0 profit). The red curved line in the diagram depicts the typical distribution of individual customer profitability.

This diagram illustrates that, in many B2B companies, a relatively small percentage of customers produce attractive profit levels, and a small percentage generate significant losses.

The most sobering point is that customer profitability isn't always correlated with sales volume. In other words, when company leaders measure customer profitability accurately, they often find large customers at both ends of the profitability spectrum. This explains why basing an account-based growth strategy solely on customer revenue is risky.

Customer Profitability Impacts Company Profitability

The third reason for the value disparity is that customer profitability has a major impact on overall company profitability.

The following diagram illustrates how the dynamics of customer profitability affect overall company profit. Once again, the horizontal axis in this diagram shows the percentage of total customers, and again, customers are arranged (left to right) from the most profitable to the least profitable. The vertical axis depicts the percentage of total company profit. The red horizontal line across the diagram is the actual annual profit earned by the company.

When companies measure customer profitability accurately, many find that their most profitable 20% to 40% of customers actually produce between 150% and 300% of total reported company profit. Customers in the middle of the profitability spectrum more or less break even, and the least profitable 20% to 40% of customers consume between 50% and 200% of profit, leaving the company with its actual reported profit.

So, all the profit above the red horizontal line in the diagram is unrealized profit. This is the profit the company earned and then gave away. For obvious reasons, this diagram is often called "The Whale Curve of Customer Profitability," and it dramatically illustrates why customer profitability is so critical to your company's financial performance.

A Final Word

As I noted earlier, companies using an account-based growth strategy segment their customers into multiple tiers based on each customer's perceived value. Then they develop and use more high-touch and highly customized engagement programs for customers in higher tiers than for those in lower tiers. 

One primary goal of measuring the profitability of individual customers is to provide business leaders with information that will help them make better decisions about where to place each customer in the value hierarchy.

In Account-Based Growth, Burgess and Shercliff recommended that companies prioritize their accounts based on two factors:

1. The "attractiveness" of each account; and
2. The competitive strength of their company in/with each account.

The research by Burgess and Shercliff clearly showed that an overwhelming majority of companies use current revenue and growth potential to determine the attractiveness of each of their accounts.

This article demonstrates that business leaders should also consider customer profitability when evaluating account attractiveness.

Is B2B Brand Marketing Making a Comeback?

Dentsu, the global provider of marketing and agency services, recently published the 2024 update to its Superpowers Index study. Dentsu has conducted this research annually since 2021, and the firm says it now constitutes the "largest ever systematic study of B2B buying behavior globally."

The 2024 update was based on interviews with 3,528 B2B buyers covering 6,539 buying experiences. Over the four years of the study, Dentsu has interviewed over 14,000 B2B buyers about over 25,000 buying experiences.

The Dentsu research had three primary objectives. It sought to identify:

• The drivers behind B2B buying decisions

• Who is involved in the buying process and what makes a difference to buyers at each stage

• How improving the buying experience impacts commercial outcomes

The Resurgence of Brand

One of the most notable findings from the 2024 research is that "personal" decision drivers have become more important to B2B buyers. This led Dentsu to assert that "Brand has never been more important in B2B."

Dentsu provided the interviewed buyers 30 decision drivers and asked them to rank the drivers based on how much influence each driver had on their buying decision. The following table shows the ten most influential decision drivers identified by buyers in 2024 and where each of those drivers ranked in the 2023 research.

As this table shows, "I feel safe signing a contract with them" was the most influential decision driver in both 2024 and 2023.

In 2024, the second and third most influential drivers were "Is known as being a good employer" and "Active thought leaders in their category/sector." Dentsu characterized both of these as "personal" drivers, and both were ranked significantly higher in 2024 than in 2023.

In the paper describing the 2024 research, Dentsu observed that ". . . for the first time since we started Superpowers, we see 'personal' decision drivers outweigh the more functional drivers in their overall importance in the B2B buyer journey."

The resurgence of brand is also reflected in the attitudes of B2B marketers. In the 2024 research, B2B marketers ranked "raising brand awareness/top of funnel performance" as the most important objective for future strategy, up from fifth place in 2023. Meanwhile, "demand generation/driving and converting leads" fell to seventh place in 2024, down from fourth place in 2023.

My Take

The relative importance of brand marketing vs. demand generation marketing (a/k/a "performance marketing") has been the topic of a long-standing debate in the B2B marketing community. A few years ago, Samuel Scott described this divide in marketing as a "cold war." Until recently, the proponents of demand generation marketing were clearly winning the war.

For nearly two decades, most B2B marketers have been primarily focused on using data and technology to improve the performance of their demand generation programs. Not surprisingly, most of the B2B marketing research published over the past two decades has also been focused on demand gen marketing technologies and techniques.

But despite the widespread focus on demand generation marketing, brand building never completely disappeared from the conversation. Throughout this period, a cadre of respected marketing thought leaders continued to stress the importance of brand marketing in B2B, and these thought leaders' views have been consistently supported by credible research.

Here are two other research studies that provide persuasive evidence for the importance and value of B2B brand marketing.

The Bain & Co./Google Survey

In 2022, Bain & Co. and Google surveyed 1,208 people at U.S. companies who were involved in buying several kinds of business products and services. From 80% to 90% of the survey respondents said they had a set of vendors in mind before they did any research. And, 90% of those respondents said they ultimately chose a vendor that was on their day-one list.

In an article about the survey for WSJ/Business, Therese Parkes with Google wrote that this behavior "means brand building and remaining top of mind during this process is essential."

The WSJ Intelligence/B2B International Survey

In a 2021 survey of 1,601 business decision-makers by WSJ Intelligence and B2B International, researchers asked participants to think about a recent purchase and reflect on the vendor that was ultimately selected (the winning vendor) and on a vendor that was considered but not selected (the losing vendor).

The survey found that the mental impressions buyers have about potential vendors before they begin an active buyer process have a significant impact on purchase decisions. Specifically:

• Survey respondents were more than twice as likely (79% vs 37%) to say they were very familiar with the winning vendor versus the losing vendor before their active buying process began.

• Respondents also said they had a higher level of trust (57% vs 37%) and confidence (52% vs. 37%) in the winning vendor versus the losing vendor before they started their buying process.

*****

So, is B2B brand marketing making a comeback? I think the answer to this question is "Yes," but its too soon to tell how much of a comeback. 

Les Binet and Peter Field have argued that B2B companies should spend 46% of their marketing budget on long-term brand-building programs. I suspect few, if any, B2B companies are spending at that level, but I don't doubt that astute B2B marketers are increasing their investment in brand marketing.

Top image courtesy of EdgeThreeSixty via Flickr (CC).

Buyer Insights That Should Guide Your Planning for 2025

With the fourth quarter of 2024 less than two weeks away, many B2B marketing and sales leaders will soon begin planning for 2025. To develop an effective go-to-market plan, it's vital to understand how the decision-makers in your target market(s) prefer to engage with potential suppliers at all stages of the buying process.

Recent research by McKinsey & Company provides several important insights regarding B2B buyer preferences and behaviors that you should consider as you develop your go-to-market plans for next year. McKinsey's 2024 B2B Buyer Pulse Survey produced nearly 4,000 responses from B2B decision-makers across 34 sectors in eight industries from 13 countries.

Here are some of the key findings from the McKinsey survey.

B2B Buyer Archetypes

McKinsey's research identified three distinct archetypes of B2B decision-makers based on their varying preferences and needs.

• Adapters (44% of survey respondents) - These decision-makers are highly relationship-oriented. "While willing to try new channels, they tend to stick with patterns that they are familiar with and are slow to try new experiences, channels, and suppliers . . ."

• Innovators (20% of respondents) - These decision-makers ". . . are on the cutting edge when it comes to newer technologies . . . They are highly likely to be on any and all digital channels."

• Seekers (36% of respondents) - These decision-makers ". . . demand a seamless omnichannel experience. If they don't get it, they are quick to seek out a new supplier."

Planning Consideration - McKinsey found that all three archetypes are "consistently present" across geographies and economic sectors. Therefore, it's likely the potential buyers in your company's target market(s) will include all three archetypes, and your go-to-market strategy will need to contain elements designed to appeal to each buyer archetype.

The "Rule of Thirds"

McKinsey found that B2B decision-makers interact with potential suppliers in multiple ways. In the 2024 survey, respondents reported that on average, they spend about one-third of their "interaction time" engaging with suppliers via each of three types of interaction.

• Traditional - In-person meetings, direct mail, fax, etc.

• Remote - Phone calls, video conference calls, emails, etc.

• Digital self-service - Company websites, e-commerce, chatbots, internet searches, mobile apps, etc.

McKinsey observed that this "rule of thirds" is consistent across all stages of the buying process and that it holds true across all geographies, industries, company sizes, and buying scenarios (new vs. repeat purchases, high-value vs. low-value purchases).

Even more significant, McKinsey found that the "rule of thirds" is generally consistent across all three B2B buyer archetypes. Adapters have a slightly higher preference for Traditional interactions, but the difference is not great.

The most significant departure from the "rule of thirds" relates to buying scenarios. About 40% of the survey respondents tend to prefer Traditional interactions for "high-effort" purchases. High-effort purchases would include first-time purchases, high-cost purchases, purchases of complex products or services, and purchases from new suppliers.

Planning Consideration - The "rule of thirds" is nearly universal. Therefore, your go-to-market approach should include options for all three interaction types.

Omnichannel/E-Commerce

The findings of the McKinsey survey confirmed the importance of providing seamless omnichannel experiences, including robust e-commerce capabilities. Most survey respondents reported using ten or more ways to interact with potential suppliers during their buying process. This was up from five interaction channels in the 2016 edition of the Buyer Pulse survey.

Equally important, more than half of the survey respondents said they were likely to switch suppliers if they didn't have a smooth experience across channels.

The 2024 survey results also made the importance of e-commerce emphatically clear. Seventy-one percent of the respondents said they offer some form of e-commerce, and in those companies, e-commerce sales generate 34% of total revenue, on average.

The survey also confirmed that many B2B buyers are comfortable making larger purchases via e-commerce and other remote interaction channels. The survey asked participants this question:  "What is the maximum order size that you would purchase through end-to-end digital self-service and remote human interactions for a new product or service category?"

Seventy-three of the respondents said $50,000 or more, 39% said $500,000 or more, and 20% said $1 million or more.

Planning Consideration - Unless your company is an outlier, your go-to-market strategy needs to include a major focus on providing seamless omnichannel interaction experiences, and e-commerce should be the centerpiece of your omnichannel strategy.

*****

Every company's competitive environment is unique in some ways. Therefore, not every finding in the McKinsey survey will be literally and precisely applicable to your situation. However, the broad trends identified in the survey should be carefully considered during your planning process.

Image courtesy of Mike Lawrence (CreditDebitPro.com) via Flickr (CC).

Why CMOs Need to Become "T-Shaped" Leaders

(Marketing's role in driving revenue generation and growth at B2B companies has never been more important. However, research continues to show that the influence of most CMOs with their CEO isn't as strong as the importance of marketing suggests it should be. This post describes how CMOs can elevate their standing with the CEO and other senior leaders.) 

The Vital Role of Marketing

Today's business decision-makers have easy access to information about almost every conceivable business issue, challenge, and possible solution. As a result, business buyers are increasingly gathering information and researching solutions via interactions with various forms of content, and the design and development of that content falls squarely in the province of marketing.

A 2023 survey by 6sense found that the average B2B buying cycle requires just under 11 months. The survey also found that on average, the first direct contact with sellers occurs at about the 8-month mark. This means about 70% of the average B2B buying process happens before buyers engage directly with vendor sales reps.

Where CMOs Stand With CEOs

Under these circumstances, it would be logical to think that the CMO's influence with the CEO and other C-level executives has increased substantially as marketing has become more essential to revenue growth. However, the research paints a more mixed picture.

It's clear that CEOs view CMOs more favorably now than they did a few years ago. In 2012, The Fournaise Marketing Group released the findings from interviews with more than 1,200 CEOs in North America, Europe, Asia, and Australia.

Eighty percent of the interviewed CEOs said they did not really trust and were not very impressed by the work done by marketers. Sixty-four percent of the CEOs said they had taken product and pricing powers away from CMOs because those factors are too important for business success to let marketers control them.

Just over a decade later, the picture had improved considerably. In The Third Annual CEO Study on Marketing and the CMO conducted by Boathouse in 2023, nearly half (49%) of the surveyed CEOs rated their marketing performance as "Best in Class," up from 24% in the 2022 edition of the survey.

Twenty-six percent of the CEOs in the Boathouse study gave their CMO a grade of "A" on the overall performance of their role. That was up from 16% in the 2022 survey.

However, the 2023 Boathouse survey also identified areas where CEOs weren't as satisfied with CMO performance. For example, only 22% of the surveyed CEOs gave their CMO a grade of "A" on strategy, and the lowest number of "A" grades given to CMOs was on their "ability to drive company growth."

A CMO's ability to influence the CEO ultimately depends on gaining and keeping the CEO's trust. The current evidence suggests that CEOs place a moderate level of trust in their CMO, but trust other C-level executives more.

The 2023 Boathouse survey asked CEOs about the personal trust they placed in members of their leadership team. CMOs were in fourth place (out of eight C-level roles), behind the chief financial officer, chief operating officer, and chief strategy officer.

How CMOs Can Elevate Their Influence

So, what can CMOs do to increase their influence with the CEO? Recent research by Transmission, a global B2B marketing agency (in association with B2B market research firm NewtonX) provides valuable insights on this question, even though the research was focused on a different issue.

The goal of the Transmission study was to identify the attributes CMOs need to exhibit to increase their chances of being selected to serve on a B2B company's board of directors.

The research for the study consisted of interviews with current and former directors (CMOs and non-CMOs) at public and private B2B boards and a survey of 311 B2B CMOs. Based on the interviews, Transmission and NewtonX developed a "Board-Ready CMO Framework" that described eight skills, capabilities, or behavioral traits a CMO must have to be an attractive director candidate.

While this framework focused on the attributes that will help CMOs become "board-ready," several of the attributes can also help CMOs elevate their standing with their CEO.

When it comes to earning greater trust from the CEO, the most important of these attributes is what Transmission and NewtonX called "T-Shaped skills." As the diagram at the top of this post illustrates, a "T-Shaped CMO" is an individual who has deep marketing expertise and a solid working knowledge of "how the business works" overall.

A T-Shaped CMO understands the company's business model, what drives profits in the business, and what levers company leaders can pull to impact financial performance. He or she is knowledgeable about current economic conditions and trends and has a solid understanding of the competitive dynamics of the markets the company serves.

Perhaps most importantly, a T-Shaped CMO can place marketing in the context of the company's overall business strategy and provide sound, evidence-backed advice that will help the CEO and other senior leaders make the trade-offs that are an inevitable part of running a business in a complex, always-changing environment.

In short, a CMO who wants to have greater influence with the CEO and other members of the C-suite needs to demonstrate that he or she is an astute, well-rounded businessperson who also happens to be an outstanding marketer.

[Research Round-Up] Recent Studies Reveal the State of Revenue Operations

(This month's Research Round-Up discusses the major findings of two recent surveys addressing the current state of revenue operations. Revenue operations, a/k/a "RevOps," is a management system designed to align the activities of a company's customer-facing revenue teams to accelerate growth. The RevOps model has been gaining traction in B2B companies for several years, but it's still a relatively young management approach.)

Source:  Openprise

2024 State of RevOps Survey by Openprise in association with MarketingOps.com and the RevOps Co-op

• The survey produced 152 responses from operations professionals
• 47% of the respondents described their job role as "marketing operations," while 40% said "revenue operations"
• 37% of the respondents were at the "manager/senior professional" level, and 30% were at the "director" level
• Respondents were drawn from over 11 industry verticals; 44% were affiliated with information technology companies
• 47% of the respondents were affiliated with B2B companies, and another 19% worked at hybrid B2B/B2C companies
• 38% of the respondents were with companies having 100-499 employees, and 21% were with companies having 500-999 employees
• The survey report does not indicate when the survey was fielded

This survey explored a wide range of issues relating to revenue operations. Regarding RevOps implementation, 35% of the survey respondents said their company had a formal RevOps department, and 32.5% said their company had a functional RevOps team but not a formal department.

An overwhelming majority (89%) of the revenue operations survey respondents said their RevOps team supported all three of their company's go-to-market teams - marketing, sales, and customer success.

There was less agreement on who the RevOps team reported to. Forty-one percent of the revenue operations survey respondents said they reported to the chief revenue officer, while 21% said the chief financial officer, and 10% said the chief operations officer.

One particularly interesting finding in this survey was that organizations with formal RevOps departments did not experience better alignment among go-to-market teams than the overall average. This finding suggests that having a formal RevOps department won't in itself produce better alignment among revenue teams.

The Openprise survey also produced several interesting findings on other topics related to revenue operations, including how companies are managing data and technology and what skills are in high demand.

Source:  Revenue Operations Alliance

State of Revenue Operations Report 2023 by the Revenue Operations Alliance

• A survey of revenue operations professionals from all seniority and experience levels
• The survey report does not indicate how many responses the survey produced or when the survey was fielded
• Three-fourths (74.3%) of the survey respondents were drawn from two industries - software and technology information (53.6%) and technology and services (20.7%)
• Almost two-thirds (65.9%) of the respondents worked in North America, followed by 28% in the UK and Europe

Like the Openprise research, this survey provides data on a wide range of topics relating to revenue operations.

Six in ten (59.8%) of the organizations represented in the survey have only had a revenue operations function for 1-2 years, and nine in ten (90.3%) have had a revenue operations function for less than five years.

When survey participants were asked to identify the main activities they are responsible for, the top three activities selected were:

• Metrics and KPIs (89%)
• Pipeline strategy (81.7%)
• Tech stack management (79.3%)

Go-to-market strategy was a strong fourth at 78%.

When survey participants were asked which of their activities made the most business impact, the order changed slightly. the top three selections were:

• Metrics and KPIs (65.9%)
• Go-to-market strategy (51.2%)
• Pipeline strategy (43.9%)

Here are some of the other headline findings from the survey.

• Recurring revenue was the metric most frequently used by survey respondents to measure the success of their activities.

• 41.4% of the respondents said their RevOps team consisted of 2-4 individuals, and another 22% said they were the only person working in the revenue operations function.

• Four in ten (40.2%) of the respondents said their RevOps function has no dedicated budget allocation.

• Among the respondents with a dedicated budget, four in five (81.6%) said their budget is mostly spent on software.

• Three in ten (30.4%) of the respondents said they report to their company's chief revenue officer, and 25.6% said they report to their company's CEO.

This survey also produced findings regarding the value and influence of the RevOps function and the skills needed to be successful in revenue operations.

Winning Profitable Growth from New Markets

 The ultimate objective of marketing is to drive revenue growth, and marketers understandably focus most of their efforts on increasing revenues from their company's current business.

Some companies have a vibrant core business that provides plenty of growth. However, sooner or later, most companies will likely see growth from their core business slow. When that happens, company leaders will probably start to think about some kind of business expansion.

I believe marketing leaders should play a prominent role in identifying business expansion options. They have (or should have) the knowledge and skills needed to evaluate the growth potential presented by expansion moves.

In fact, marketing leaders should always be scanning the environment to identify expansion moves that might be attractive. This is one of the behaviors that distinguishes a "chief marketing communications officer" from a true growth leader.

What Are Adjacent Market Expansions?

One attractive growth option for many companies is an adjacent market expansion, which can be defined as a move by a company into a separate market that is related to the company's core business. The diagram at the beginning of this post shows four common ways to move into an adjacent market.

• Sell existing products or services to new types of customers

• Introduce new types of products or services

• Open new selling channels

• Move into new geographic market areas

In the real world, an adjacent market expansion can span more than one of these four actions. For example, a company may simultaneously add new products or services and target new types of customers.

A successful adjacent market expansion can drive superior financial performance. Recent research by McKinsey & Company found that large manufacturing companies entering an adjacent market generated a median total shareholder return that was three percentage points higher than peer companies not making such a move.

Evaluating Adjacent Market Expansions

Adjacent market expansions can produce significant growth, but like all business expansions, they also carry substantial risks. Therefore, you should view adjacent market expansions as strategic moves that must be thoroughly evaluated. This evaluation requires you to answer two critical questions:

• Does the adjacent market offer significant potential for profitable growth?

• What are our odds of winning in that market?

To answer the first question, you'll need to perform market research to pin down three attributes of the adjacent market - its overall size, its growth rate, and the profitability of companies already operating in the market.

The second question is more complex because it requires you to answer several other questions. For example:

• Do the similarities between the adjacent market and our core business provide us a competitive advantage in the adjacent market?

• What products and/or services must we provide to have an offering that will be attractive to customers in the adjacent market?

• How strong are the primary competitors in the adjacent market, and how will they react to our entry?

• What new capabilities must we acquire or develop to compete effectively in the adjacent market?

All these questions are important, but none is more important than the first. By definition, an adjacent market expansion is a move by a company into a related business that seeks to leverage the company's competitive strengths in its core business. As the "distance from the core" increases, so does the risk associated with an adjacent market expansion.

Determining the "Distance from the Core"

"Distance from the core" refers to how similar a proposed adjacent market is to your company's core business. The less similar they are, the greater the distance from the core.

B2B markets can be described in terms of six basic characteristics.

• Customers - What kinds of businesses purchase the products and/or services the market offers?

• Products/Services - What products and/or services do the companies in the market provide to customers?

• Capabilities - What capabilities must companies possess to operate successfully in the market?

• Selling Channels - What channels do companies operating in the market use to market and sell their products and/or services?

• Geography - What is the geographic "footprint" of the market?

• Competitors - What companies sell in the market?

These six attributes define the boundaries of a market, and they also play a critical role in defining the core business of an individual company. Your company's core business consists of the particular combination of customers, products/services, capabilities, selling channels, and geographies that contribute the bulk of your company's revenues and profits.

Measuring the distance from the core is a three-step process. The first step is to describe your company's core business in terms of the six attributes just discussed. Step 2 is to describe the proposed adjacent market in terms of the same six attributes.

The final step is to rate the strength of the similarities between your core business and the potential adjacent market on an attribute-by-attribute basis. When I work with clients on this kind of project, I have them rate the similarity of each pair of attributes using a 5-point scale, with 1 meaning almost identical, and 5 meaning very dissimilar.

After you rate each pair of attributes, you add the individual ratings to create a single measure of the overall "distance" between your core business and the adjacent market. Your total score will range from 6, meaning that your core business and the adjacent market are nearly identical, to 30, indicating that all the characteristics of your core business and the adjacent market are very different.

This rating process isn't completely objective, but it does require business leaders to make a conscious judgment about the similarity or lack of similarity between their core business and a prospective adjacent market. That similarity is important, because the greater the similarity, the more likely it is that the competitive strengths you have in your core business will "translate" to the adjacent market.