Cracking the Code on Strategic ABM Success

 The Story of ABM

Over the past two-plus decades, account-based marketing (ABM) has evolved from a niche marketing discipline used mainly by large IT services firms to become a core component of marketing at many B2B companies.

The Information Technology Services Marketing Association (ITSMA) (now part of Momentum) coined the term "account-based marketing" in 2003, and ABM soon became a central focus of its research and consulting.

ITSMA defines account-based marketing as ". . . a strategic approach to designing and executing highly-targeted and personalized marketing programs to drive business growth and impact with specific, named accounts." [Source]

The popularity of account-based marketing has grown dramatically because B2B marketers perceive that ABM is highly effective. In the 2023 Global State of Account-Based Marketing survey by ITSMA and ABM Leadership Alliance, 81% of the respondents said ABM programs deliver a higher return on investment than "traditional marketing initiatives."

As originally conceived, ABM was viewed as a special approach to marketing that would be used with a company's most valuable customers. Within a few years, however, the successes achieved by early ABM adopters prompted marketers to look for ways to scale account-based marketing so that it could be cost-effectively used with a broader range of accounts.

In its 2016 Account-Based Marketing Benchmarking Survey, ITSMA documented the rise of three distinct types of ABM - strategic ABM (a/k/a one-to-one ABM), ABM Lite (a/k/a one-to-few ABM), and programmatic ABM (a/k/a one-to-many ABM).

This three-part framework has become the standard way to describe account-based marketing, but the reality today is that one-to-few and one-to-many ABM aren't materially different from state-of-the-art conventional outbound B2B demand generation marketing.

This is not true for strategic ABM, which embodies a very different marketing approach. With strategic ABM, marketing activities and programs are components of a multi-faceted management plan for a single customer account, and they are customized for that account.

Strategic ABM Still Rules

While one-to-few and one-to-many ABM have broadened the reach of account-based marketing, the linchpin of any successful ABM initiative is still strategic ABM.

Strategic ABM remains the most widely-used type of account-based marketing, and most ABM thought leaders and practitioners agree that strategic ABM - if done well - will generate a higher ROI than one-to-few or one-to-many ABM. Put simply, it's hard to have a high-performing ABM program if don't master strategic ABM.

The functional centerpiece of a successful strategic ABM initiative is the account management plan. With strategic ABM, a separate plan is developed for each account in the initiative. This is the first distinguishing characteristic of strategic ABM. It's truly one-to-one.

An effective strategic ABM account plan is also distinguished by the process used to develop it and the content it contains.

Developing the Plan(s)

Strategic ABM is often implemented in companies that already have a key account management (KAM) program. Key account programs have existed in some large B2B companies since the late 1950s. Early KAM programs were usually led by a sales executive, and their primary focus was managing sales opportunities.

The discipline of key account management has evolved substantially over the past six decades. Many companies now have well-developed KAM programs that are designed and executed by cross-functional account teams, and led by dedicated, senior-level account managers.

Today, the best KAM programs are focused on identifying longer-term growth opportunities in the account and maintaining the long-term health of the customer relationship, as well as on shorter-term sales opportunities.

In these circumstances, strategic ABM is essentially synonymous with key account management. A marketer becomes a member of the account management teams (usually no more than 5) and brings marketing expertise to the formulation of the account management plans. ABM activities are fully integrated into the account management plan so that the company has a single, cohesive strategy and plan for each key account.

Content of the Plan(s)

An effective strategic ABM/KAM account management plan is essentially a full-fledged business plan that is focused on an individual customer. The objective of the account planning process is to formulate a strategy and set of actions that will (a) protect the current revenue you are earning from the customer, and (b) enable you to grow the revenue you earn from the customer.

I used the term "business plan" intentionally because an effective strategic ABM/KAM plan is similar to the kind of business plan you would develop for any strategic move, such as the introduction of a new product or service, or an adjacent market expansion.

You can easily find dozens of business plan templates by performing a simple Google search. The framework that I've found works well for an account management plan contains six major components.

Customer Description

The objective of this portion of the plan is to provide a comprehensive picture of the customer's business operations, competitive position, organizational structure, and financial performance.

This portion of the plan should describe:

• The market(s) the customer serves and the economic attractiveness and growth potential of those markets
• The products and/or services the customer offers
• The types of individuals and/or organizations the customer primarily serves
• The customer's principal competitors
• The customer's current and recent financial performance
• The customer's business strategy and strategic priorities
• Any recent or planned structural changes (expansions or contractions)
• The customer's senior leadership team

If the customer is a public company, much of this information, including financial performance data, can be obtained from the customer's regulatory filings. If the customer is privately owned, financial data can be more challenging to obtain.

A mindset that I've found useful when preparing this portion of an account plan is to imagine that you are a stock analyst who is preparing an evaluation of the customer for investment purposes.

Current Relationship

This portion of the plan is where you describe your current position with the customer. What products and/or services do you sell to the customer? How long have you been doing business with the customer? How has the revenue you earn from the customer changed over the past 2-3 years? Who are your principal competitors for the customer's business? How strong is your current relationship with the customer? Most importantly, what "share of wallet" are you currently earning from the customer?

Relationship Objectives

This portion of the plan details your objectives for the relationship with the customer. Most of these objectives will be about increasing the revenue you earn from the customer, and those objectives are usually best expressed in terms of increasing the share of customer spend you earn in relevant areas.

You may also want to include more "operational" objectives. For example, if the customer has several business units and you are currently doing business with only some of those business units, you may have an objective to win business from a new business unit.

Threats/Barriers to Success

This is where you identify the events or circumstances that could throw a wrench into your plan. Obviously, you can't foresee every possible threat or barrier, but if you have deep customer insights and a realistic picture of your company's capabilities, you can identify many of the plausible events or circumstances that could derail your success.

Measurable Outcomes and Milestones

Every account management plan should include specific outcomes that are quantitatively measurable. Obviously, these outcomes will include your ultimate relationship objectives. For example:  "Increase the revenue we earn from XXX by 15% in our next fiscal year." You should also include measurable outcomes that are milestones or leading indicators of progress toward your ultimate objectives.

Action Plan

This portion of the account plan details the actions you will take to achieve your relationship objectives. Your account plan should identify who is responsible for each action and specify a target completion date. This level of detail will enable the members of your account management team to organize their work, hold each other accountable, and track progress toward success.

Final Thoughts

It should be clear that developing this type of account business plan isn't a trivial undertaking. It requires a significant amount of time and effort, especially the first time it's done for a customer. That's why strategic ABM/KAM initiatives should be reserved for your most valuable customers.

The deep customer insights and level of focus resulting from the account planning process also go a long way to explaining why well-designed and executed strategic ABM/KAM programs deliver outstanding value and ROI.

Image courtesy of emiliokuffer via Flickr (CC).

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.

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).

Where to Find Revenue Growth Opportunities

For the past several years, I've written a few posts each fall that address some aspect of marketing planning. With the fourth quarter of 2023 beginning today, many marketers will have started (or soon will be starting) their planning for 2024.

Last week's post discussed how marketers can use the jobs-to-be-done framework to define their market and determine how their products or services create value for customers. This framework helps marketers pinpoint what will motivate their customers to buy.

The following post describes a framework marketers can use to identify what sources of revenue growth are (or can be) available to them. Identifying sources of potential revenue growth is an essential part of a sound planning process.

I published this post in 2019, but the content of the post is as relevant today as it was four years ago. What follows is a lightly edited version of the original post.

The Original Post

Driving consistent, profitable revenue growth is one of the greatest challenges that business and marketing leaders face. The key word in that sentence is "consistent." Many companies can produce substantial revenue growth sporadically or over a short period of time, but it's exceptionally difficult to consistently generate above-average growth over the long term.

Business and marketing leaders must perform two distinct but related tasks to maximize revenue growth:

1. They must identify what growth opportunities are (or can be) available to them and determine which of those growth opportunities are most attractive.
2. They must find the right balance between short-term and long-term growth opportunities.

In this post, I'll focus on how business and marketing leaders can identify growth opportunities.

Structural Sources of Growth

The first step in identifying potential growth opportunities is to understand the dynamics of revenue growth - how it happens or, more accurately, where it originates. There are, in fact, several distinct sources of growth. These structural sources of growth are not dependent on how a company is organized or on the types of products or services it sells. Instead, they are based on the business and marketing strategies that a company uses to tap into each source.

This topic has been discussed in management and marketing literature for a long time. In a 1957 article for the Harvard Business Review, Igor Ansoff identified four structural sources of growth and four related types of growth strategies:

1. Sales of existing products in existing markets (market penetration strategy)
2. Sales of existing products in new markets (market development strategy)
3. Sales of new products in existing markets (product development strategy)
4. Sales of new products in new markets (diversification strategy)

In a 2004 article in the Harvard Business Review, Michael Treacy and Jim Sims identified five structural sources of growth:

1. Continuing sales to existing customers (base retention)
2. Sales won from the competition (market share gain)
3. New sales in an expanding market (market positioning)
4. Sales from expanding into related markets (adjacent market expansion)
5. Sales from expanding into new, unrelated lines of business (diversification)

I've used both of these models when working with clients to frame our discussions about how to grow. But over the years, I've expanded on these models to create a more detailed framework of the alternative ways to generate growth. The current version of my framework is shown in the following diagram.

This framework is a good tool for stimulating your thinking about how to grow your business and for identifying the growth opportunities that are (or can be) available to your business. When using this framework, it's important to keep several things in mind.

First, the good news is that these structural sources of growth are always present, at least to some degree. Their existence isn't dependent on the market conditions a company is facing at a particular moment in time. However, the volume of revenue that a company can obtain from each source is greatly influenced by the market and competitive environment. 

So the framework identifies potential sources of revenue growth, but it doesn't tell you about the relative attractiveness of those sources. You'll need to use traditional market and competitive analysis tools and techniques to perform that evaluation.

Second, no single source of growth is likely to provide all the revenue you need to reach your growth objective.

And third, each source of growth has distinctive attributes and dynamics. So you'll need a specific strategy and game plan for each source of growth you choose to pursue.

*****

Top image courtesy of ccPixs.com (CC).

When Planning for 2024, Focus On the Jobs Your Customers Need to Get Done

Understanding what will motivate a potential customer to buy your products or services is a critical prerequisite to developing an effective marketing strategy and creating compelling marketing communications. As thousands of marketers will attest, this isn't a simple task.

As marketers, we develop customer value propositions and we create content we believe will resonate with our potential buyers. But too often, our marketing programs don't produce the results we expect.

This lackluster performance frequently stems from the methods marketers typically use to define their market(s) and to determine and describe how their products or services will create value for customers.

Most B2B marketers define their market(s) based on a combination of product/service characteristics and the attributes of their potential customers (company size, industry vertical, etc.). 

So, for example, a marketer might define his or her market in these terms:  "We sell manufacturing execution system software to large enterprises that are engaged in both discrete and process manufacturing."

Then, marketers use these definitions to guide the development of their customer value propositions.

The problem is, these conventional approaches to defining markets and identifying how products or services create value don't help marketers pinpoint what actually motivates people to buy. Fortunately, there's a proven way to solve this problem.

Understand What Customers Need to Get Done

The starting point for understanding what will motivate your potential customers to buy is to recognize that people don't buy a product or service because they want the product or service itself. In most cases, what they really want is what the product or service will enable them to accomplish. 

For example, most small business owners don't really want a company brochure, or a direct mail campaign, or, for that matter, a website. But, many will invest in these things because they see them as effective tools for increasing sales.

Theodore Levitt, the legendary professor of marketing at the Harvard Business School, memorably expressed this idea when he often told his students, "People don't want to buy a quarter-inch drill. They want a quarter-inch hole."

In their 2003 book, The Innovator's Solution, Clayton Christensen and co-author Michael Raynor built on Professor Levitt's thinking to describe what is now widely known as the jobs-to-be-done framework (the "JTBD framework"). In 2005, Christensen and co-authors Scott Cook and Taddy Hall further described the importance and value of the JTBD framework in a landmark article published in the Harvard Business Review.

The basic idea of the JTBD framework is that when people identify a "job" they need or want to get done, they look for a product or service they can "hire" to perform the job.

Christensen and his co-authors argued that this is how customers "experience life." Their thought process begins with an awareness that they need or want to get something done, and they seek to hire something or someone to do the job for them.

So, the presence and recognition of a job that needs to get done are what trigger and energize a potential customer's motivation to buy. This makes the job - not product/service features or customer demographics/firmographics - the primary unit of analysis for marketers who hope to develop and execute high-performing marketing strategies and programs.

In the HBR article, Christensen and his co-authors put it this way:

"The marketer's task is therefore to understand what jobs periodically arise in customers' lives for which they might hire products the company could make. If the marketer can understand the job, design a product and associated experiences in purchase and use to do that job, and deliver it in a way that reinforces its intended use, then when customers find themselves needing to get that job done, they will hire that product."

I've previously written about how the JTBD framework can be used to guide the development of marketing content. The point of this post is that the framework can also be a powerful tool for thinking about market definition, market segmentation, and value proposition development during your marketing planning process.

So, as you begin planning for 2024, take enough time to identify the jobs your potential customers are facing that your products or services can perform. This is the real key to understanding what will motivate your potential customers to buy.

Image courtesy of Got Credit (www.gotcredit.com) via Flickr (CC)

The Vital First Step of Your Marketing Planning for 2024

The fourth quarter of 2023 is only a few weeks away, and that means many B2B marketing leaders will soon begin planning for next year.

Marketing planning processes vary considerably across companies. The planning process in large enterprises can be quite formal, and the output is often a lengthy document replete with spreadsheets containing budget details and financial projections. The planning process in smaller companies tends to be less formal.

Regardless of whether your planning is formal or informal, one key to having a sound planning process is to start the process in the right way. Fortunately, a proven technique from military planning can help marketing leaders get their planning process started on the right basis.

For years, US military commanders at all levels have used a framework called METT-TC as an integral part of their planning process. METT-TC is a mnemonic that is designed to help commanders remember and prioritize what to analyze when planning a military operation.

METT-TC stands for mission, enemy, terrain, troops available, time, and civil considerations. These six factors define the environment in which any military operation will be conducted, and commanders must thoroughly analyze each of these factors to develop sound operational plans.

When I work with a client to develop a marketing plan, I begin with an analysis of four environmental factors, and I've created a mnemonic for these factors that serves much the same purpose as METT-TC. My mnemonic is MEC-R, which stands for mission, economic/legal environment, competitive landscape, and resources available.

Mission Is "First Among Equals"

These four factors are all important, but mission is clearly the "first among equals" because it provides the critical starting point for a sound planning process. Mission occupies this pivotal position for two reasons.

First, to maximize impact and effectiveness, all marketing activities must be aligned with, and supportive of, a clearly defined mission. With every proposed marketing initiative, you should ask:  "How will this initiative help us fulfill our mission?" Obviously, you can't answer this question if you don't have a clear picture of what your marketing mission is.

The second reason is equally important. To be a successful marketing leader, you need the support of your CEO and other senior company leaders. Your chances of gaining and keeping that support will be higher if you and the other members of your company's senior leadership team have a common understanding of marketing's mission.

Therefore, before you begin any detailed planning for next year, you need to have an open and frank discussion with your senior company leaders about the core mission of marketing in your organization.

More specifically, you should prepare a clear and concise high-level description of your proposed marketing mission and share it with your senior management team. The goal, of course, is to have your senior leadership team endorse your mission description.

The Core Mission of Marketing

So, what is the core mission of marketing? I'm always skeptical of marketing principles or methods that purport to be universal. Competitive conditions can vary considerably across companies, and that usually requires a company to develop business and marketing strategies that fit its unique circumstances. But, this is the "exception that proves the rule."

Every marketing organization in a for-profit company has a twofold mission, both aspects of which are linked to revenue growth. It must run programs that will generate revenue in the short term, and also design and execute programs that will lay a solid foundation for long-term revenue growth.

The need to focus simultaneously on the short term and the long term is not unique to marketing, but this can be particularly challenging for marketers. For the past several years, marketing leaders have faced increasing demands to prove the value of their activities and programs. Overall, this has been a positive development, but it can have a dark side.

Marketing programs that produce a quick impact on revenue are relatively easy to measure, and their results can be seen in a matter of a few weeks or months. However, programs whose impacts are several steps removed from the buying decisions that generate revenue are much more difficult to measure, and they may not produce visible results for a year or more.

Under these circumstances, marketing leaders often face pressures to shift resources to marketing programs that can deliver quick and easily measurable results. Unfortunately, such a shift can cause companies to under-invest in longer-term marketing activities and programs, thus placing future revenue growth at risk.

Producing both short-term and long-term revenue growth is the core marketing mission at any for-profit company, and the company's senior leadership team must understand and endorse this mission. Therefore, communicating this mission to your company's senior leaders and obtaining their buy-in is the essential first step in your marketing planning for 2024.

Image courtesy of fdecomite via Flickr (CC). 

Having a Plan Does NOT Mean You Have a Strategy

With the fourth quarter of the year now underway, many business and marketing leaders have already begun their planning for 2023. Over the next few weeks, they will be evaluating how well their business performed in 2022 and looking for ways to improve performance next year.

This annual ritual is usually called strategic planning, and the output of the process - in larger companies at least - is often a lengthy document that  describes what company leaders hope to accomplish in the coming year and what actions they intend to take. Most strategic plans also include a detailed description of where the company will invest in new or existing assets and capabilities.

In fact, the annual planning process is often dominated by budgeting issues. Roger Martin, the well-regarded strategy guru, has this to say about the predominant emphasis on budgeting:  "The vast majority of strategic plans that I have seen over 30 years of working in the strategy realm are simply budgets with lots of explanatory words attached."

The problem is, many business and marketing leaders confuse strategy with planning. They assume that the development of a business or marketing plan is equivalent to the formulation of a business or marketing strategy.

But in reality, formulating strategy and developing plans are fundamentally different tasks. They require leaders to address different issues, and more importantly, they demand different types of thinking.

Most Plans Have Three Components

In the course of my career, I've reviewed dozens of business and marketing plans, and I've found that most have three major components.

Goals/Objectives - Most business and marketing plans contain a set of goals and objectives that leaders hope to achieve in the coming year (or other planning period). Most of these goals and objectives are expressed in quantitative terms (increase revenue by X%, increase market share by X percentage points, etc.).

Initiatives - The second major component is a description of the initiatives that company leaders intend to implement (or continue) in pursuit of their identified goals and objectives. This is usually the longest part of a business or marketing plan. For example, a marketing plan for a B2B company will usually address several initiatives, such as:

• What marketing campaigns or programs will be run
• What marketing channels will be used
• What events (trade shows, etc.) will be attended or conducted
• What technology tools will be acquired, updated or replaced

Budgets - The third element of most business and marketing plans is a revenue projection and budget. As I indicated earlier, the annual planning process is often dominated by budgeting issues, so this part of the plan usually receives the greatest scrutiny from company leaders.

What Makes Strategy Different

The formulation of a business or marketing strategy requires leaders to address a very different set of issues from those covered in a typical planning process.

Strategy has been described in a variety of ways over the years. In Playing to Win:  How Strategy Really Works, A.G. Lafley and Roger Martin proposed a five-part framework that captures the essence of strategy very well. Lafley and Martin say that strategy consists of an integrated set of choices that answer five fundamental questions.

1. What is our winning aspiration? (What does success look like?)
2. Where will we play? (In which markets, with which types of customers, in what channels, in which product categories, and at which vertical stage or stages of the industry will we compete?)
3. How will we win? (What will enable us "to create unique value and sustainably deliver that value to customers in a way that is distinct from [our] competitors?")
4. What capabilities do we need to have in place in order to win in our chosen field of play?
5. What management systems do we need to institute in order to create, review, communicate about, and manage our strategy?

While all of these questions are important, questions 2 and 3 ("Where will we play" and "How will we win?") are the two that are most crucial for developing an effective strategy. Lafley and Martin wrote, "These two choices, which are tightly bound up with one another, form the very heart of strategy and are the two most critical questions in strategy formulation."

Strategy Must Come First

Success in business and in marketing requires both a sound strategy and a thorough plan, but strategy formulation should always precede planning. That's because the plan should be based on (and designed to support) the choices that define the company's strategy.

For example, a company's strategy will include choices about what types of customers the company will seek to serve and how the company will create value for those target customers. It's impossible to develop a sensible marketing plan until those strategic choices have been made.

Having a strategy in place actually makes planning easier because the strategy provides "guardrails" for the planning process. The content of the strategy enables company leaders to more easily determine which initiatives are most essential for the strategy to work and therefore are most likely to produce the desired outcomes.

Image courtesy of Kyle Van Horn via Flicker (CC).

Marketers Should Prepare for Sluggish Growth and Continued High Inflation

For the past few weeks, the hottest topic in the business/financial media has been whether the U.S. economy is headed into a recession. Every day, a parade of economists, market analysts and other pundits appear online, on TV and in print to give their view on the likelihood that a recession is on the horizon.

In addition, several major Wall Street investment firms have recently estimated that the odds of a recession occurring in the next several months have increased.

The odds of recession are increasing primarily because the U.S. Federal Reserve is tightening monetary policy in an effort to rein in historically high levels of inflation. Since the beginning of this year, the Federal Reserve Open Market Committee has raised the target federal funds interest rate 2.25%, and it has recently started reducing the size of the Federal Reserve's balance sheet (which tightens financial conditions).

The Committee has also indicated that additional interest rate increases are likely, and most Fed watchers are expecting an increase of 0.5% at the Fed's September meeting.

Marketers need to have a reasonably accurate picture of future economic conditions in order to develop sound marketing plans. As I've previously written, the health of the overall economy is one of the major factors that create the environment in which marketing plans will be executed. And while macro economic conditions affect different kinds of companies in different ways, they will impact the success of marketing efforts at most companies to some extent.

Unfortunately, the outlook for the U.S. economy over the next several months is far from clear. The uncertainty exists for several reasons, including the real-world impact of Federal Reserve's policy decisions, the continuing problems in global supply chains, and a possible energy crisis in parts of Europe this winter.

Given this high level of uncertainty, the best option for marketers is to focus on those future economic conditions that can be predicted with a reasonable degree of confidence. In my view, we can say two things about the direction of the U.S. economy over the next 6 to 12 months.

1. Economic growth (as measured by real GDP) is likely to be slow even if we are able to avoid a recession.
2. Inflation is likely to be persistent and remain above the Federal Reserve's target of about 2% per year, although there are some indications that we may already be past the peak of inflation.

Economic Growth

Real GDP growth slowed significantly in the first half of 2022. The following chart shows the trailing 12 month rate of real GDP growth measured at the end of the four most recent calendar quarters.

At the end of Q4 2021, the real GDP growth rate over the preceding 12 months was 5.5%. By the end of the second quarter of this year, the annual growth rate had fallen to 1.6%.

Most economists are predicting slow economic growth in 2022 and 2023. For example, the latest (July) forecast by The Conference Board is that real GDP will grow 1.7% in 2022 and 0.5% in 2023. (Note:  Many economists say the long-term sustainable growth rate of the U.S. economy is about 2% per year.)

Below-average growth over the next several months is the most likely scenario because it is difficult to envision any events that would trigger an increase in economic growth in the short run.

Inflation

Inflation has emerged as the most serious issue currently affecting the U.S. economy. The following chart shows the annualized rate of inflation for January through June of this year as reported monthly by the U.S. Bureau of Labor Statistics. The chart includes both the "headline" rate of inflation (All Items) and the "core" inflation rate (All Items Excluding Food & Energy).

The substantial and persistent gap between headline and core inflation shown in this chart demonstrates that high fuel and food prices have been major contributors to inflation this year. This, of course, won't be surprising to anyone who drives or eats.

On a positive note, there are some indications that inflation may already be easing. For example, as the above chart shows, the core inflation rate has been declining since March. In addition, AAA has reported that the national average price of gasoline fell from $4.85/gal on June 30th to $4.21/gal on August 1st. These declining gasoline prices should be reflected in the July consumer price index, which the Bureau of Labor Statistics will release on August 10th.

Even if inflation has already peaked, many economists and other analysts are forecasting that the rate of inflation will decline only slowly. In June, Federal Reserve Board members and Federal Reserve Bank presidents predicted that PCE inflation* in 2022 would be 5.2%, still substantially above the Federal Reserve's target inflation rate of 2%.

Key Takeaways

For marketers, the key takeaway here is that economic growth is likely to be sluggish for the next several months. The outlook for inflation is generally favorable, but energy market analysts have noted that most physical energy markets are still tight. Therefore, there is a substantial risk that energy prices could rise later this year and slow the progress on inflation.

*PCE inflation is the percentage rate of change in the price index for personal consumption expenditures. PCE inflation is generally considered to be the Federal Reserve's "preferred" measure of inflation.

Top image courtesy of CreditDebitPro.com via Flickr (CC).

[Book Review] A Strategic Guide to Using Artificial Intelligence in Marketing

Source:  Stanford University Press

The use of artificial intelligence (AI) in marketing has been discussed by an army of industry pundits, and recent research suggests that it may be nearing mainstream adoption. For example, in the seventh edition of Salesforce's State of Marketing survey (conducted May - June 2021), 60% of the respondents said they have a "fully developed" AI strategy, up from 57% in the 2020 edition of the survey.

It's easy to find e-books, white papers, and articles discussing the role of AI in marketing, and there are dozens of books dealing with the technical aspects of artificial intelligence and the social and cultural ramifications of AI.

There are far fewer full-length books that provide a detailed treatment of how AI can be used to support marketing decisions and enable more productive marketing programs. For that reason, I looked forward to reading The AI Marketing Canvas:  A Five-Stage Road Map to Implementing Artificial Intelligence in Marketing (Stanford University Press, 2021).

This book was written by Raj Venkatesan, a professor of business administration at the University of Virginia's Darden Graduate School of Business Administration, and Jim Lecinski, a clinical associate professor of marketing at Northwestern University's Kellogg School of Management.

What the Book Covers

The AI Marketing Canvas includes four major sections.

Part 1 (Chapters 1-3) - This section lays out the authors' point of view on the importance of artificial intelligence in marketing and provides an overview of the book's content. Venkatesan and Lecinski state their position on AI in explicit terms at the beginning of Chapter 2. They write:

"In this new economy . . . we believe there is one way and one way only to win, and that is with AI and machine learning - developed against a rock-solid marketing strategy . . . These strategies also need to be driven by marketing leaders whose obsession is to find ways to use AI and machine learning to personalize the customer relationship at every juncture." (Emphasis in original)

Part 2 (Chapters 4-6) - Chapter 4 discusses the emergence and power of "network" business models (e.g. Amazon, Google) that are enabled by technology platforms. In Chapter 5, the authors describe their four-stage customer relationship model (acquisition - retention - growth - advocacy), and they review the three "waves" of marketing (mass-segmented marketing, data-driven marketing and one-to-one personalized marketing). Chapter 6 explains some of the basic concepts and uses of artificial intelligence and machine learning.

Part 3 (Chapters 7-13) - This part contains the core of the book's content. In Chapter 7, the authors introduce the AI marketing canvas, and then they devote a chapter chapter to a discussion of each "stage" of the canvas framework.

The AI marketing canvas is primarily a matrix created by the four customer relationship components ("moments") and a five-stage AI maturity model that includes foundation, experimentation, expansion, transformation and monetization. According to the authors, companies that achieve a high level of success with AI in marketing will move through most of these five stages of AI maturity.

Part 4 (Chapters 14-16) - The final section of The AI Marketing Canvas provides guidance for implementing the concepts discussed in the previous portions of the book. Venkatesan and Lecinski adopt John Kotter's change management model from his 1996 book Leading Change, and they argue that changes will be needed across four organizational dimensions - people, process, culture and profit - to maximize the impact of AI in marketing.

The authors conclude their book with an unambiguous "call to action" for marketers and marketing leaders. They write:  "To be a successful marketer in the coming years, you must decide now whether you will engage and become an expert in AI marketing, or sit on the sidelines and watch the 'AI bus' pass you by - or worse, run you over."

My Take

The AI Marketing Canvas is an ambitious book that, for me, doesn't quite live up to its promise. The authors expressly state that the mission of their book is to provide ". . . a road map you can use to build an effective marketing plan - one that accounts for all that is required to effectively apply AI and machine learning to your marketing - so you can win"

Rather than a detailed "road map," the book is more like an impressionist painting than a close-up photograph. It addresses most of the important issues, but it doesn't contain enough detail to be called a "how-to" manual.

That being said, The AI Marketing Canvas provides some valuable information for marketers who are novices when it comes to artificial intelligence. For example, Chapter 6 is a good introduction to AI and machine learning, but marketers will need to learn a little more to have a good working knowledge of AI and ML.

Another particularly valuable part of the book is Chapter 8, which discusses the digital infrastructure required to collect and process the customer-related data that is necessary to feed AI applications. Providers of AI-enabled software applications typically emphasize the powerful capabilities of their solutions, but they don't talk as much about the volume or quality of data that's required for those capabilities to perform as intended.

Put simply, the output produced by an AI application will only be as good or reliable as the quality of the data it uses to generate that output. In Chapter 8 of the book, the authors emphasize that building a robust data infrastructure is the first essential step in implementing AI in marketing, and that this process doesn't end. Starbucks is one of the companies featured in The AI Marketing Canvas, and the authors note that Starbucks has been developing its data collection and AI capabilities for over ten years.

Artificial intelligence is already an integral part of marketing at many larger enterprises, and the use of AI in marketing is destined to become more widespread in the near future. The AI Marketing Canvas is a worthwhile resource for marketers who are just starting to learn about artificial intelligence. If you already have a basic understanding of how AI works and how it can be used in marketing, other resources will be more useful.

One More Key to Better Marketing in 2022

My posts here over the past several weeks have focused on providing information and discussing concepts that can help marketing leaders develop more effective marketing plans for 2022. By now, many marketing leaders will be in the final stages of their planning for next year, but there's one more important point to make.

It's undeniable that the landscape of B2B marketing is constantly changing, and successful marketers must be prepared to adapt their strategies and tactics to fit those changes. But it's equally important that marketers recognize and be prepared to leverage what hasn't changed. Here's a personal anecdote to illustrate the point.

Wisdom from the Past

Early in my business career, I was fortunate to meet and get to know a great B2B salesperson. I met William in 1988 and talked with him frequently until he retired in 1995.

William sold printing presses and other production equipment to commercial printing companies and businesses that had an internal print department. The company William worked for was (and is) highly respected in the printing industry, and William was a very successful salesperson.

William told me that one important key to his success was identifying which companies in his territory were ready to engage in a serious evaluation process that could lead to a buying decision. William also told me that at any given time, only about 10% of the prospects in his territory fit this description.

William realized that he could use his time more effectively and close more deals if he could consistently identify which prospects were ready to begin an active buying process. So he spent a fair amount of his time "taking the pulse" of his prospects.

How did he do this? Well, he devoted two or three days of almost every week to visiting prospects. In most cases, the business owner or another senior manager would be willing to spend thirty minutes or an hour with William even when he showed up unexpectedly.

During these visits, William and his prospect would talk about what was happening in the prospect's business and in the overall printing industry. William's company regularly sponsored research regarding important printing industry trends, and he would share the research reports with his prospects. Most importantly, they would discuss any issues or problems the prospect was having with his or her equipment.

Through these visits, William could get a pretty good idea of which prospects were ready to have a meaningful conversation about buying new equipment. When he identified the "sales-ready" prospects, William would shift to a more focused selling process.

Recognize What Has and Hasn't Changed

I frequently write in this blog about the many ways that B2B marketing and B2B buyers have changed and why these changes require new B2B marketing techniques. So it would be easy for me to devote this post to a discussion of why William's approach won't work in today's environment. But when I think about what William taught me, I'm struck by how many things haven't really changed all that much.

In 2022, as in William's day, B2B companies will need a way to determine which prospects are ready to begin an intentional buying process . . . and which ones aren't.

In 2022, as in William's day, B2B companies will need to be engaged with prospects who aren't ready to begin a buying process . . . because some day many of those prospects will be ready. (Note:  For more on this point, see my recent post explaining why astute B2B marketers don't ignore "out-of-market" prospects.)

In 2022, successful B2B marketing will be more about connecting with potential buyers empathetically, emotionally and rationally, demonstrating value and nurturing buyer confidence, and less about "persuading" unprepared prospects to buy. This, too, was largely true in William's day.

The pace of change in some aspects of B2B marketing over the past two-plus decades has been breathtaking, and those changes have been discussed ad nauseam in the B2B marketing literature and in hundreds of webinars and conference presentations.

But marketing leaders should not lose sight of the reality that many of the core principles of marketing and buyer psychology have changed very little. The tools and techniques that successful marketers will use next year will necessarily be different from those used in the past, but the thoughts and emotions that marketers need to evoke in customers and potential buyers haven't changed much in decades.

So as marketing leaders finalize their plans for 2022, it's vital to consider both what has and what hasn't changed.

Image courtesy of R. Miller via Flickr (CC).

Economic Forecasters Predict a Strong 2022 . . . Mostly

The success of any marketing plan depends largely on how well it accounts for the business and economic conditions that exist when the plan is executed. Therefore, as marketing leaders develop their plans for 2022, it's vital that they assess what the economic environment is likely to be next year.

This assessment should include an analysis of several macroeconomic indicators and industry-level data. At the macro level, most marketing leaders need to assess expected levels of economic growth, unemployment, consumer spending, business investment and inflation. At the industry level, they should focus on the economic factors that will or may impact demand for their company's products or services.

Several organizations have recently released economic forecasts that cover all or part of 2022, and I'll describe some of these predictions in this post. All of the forecasts discussed here are regularly updated, so marketers should check them often to ensure they are working with the latest economic outlooks.

Real GDP Growth

Most economists and other forecasters now expect the overall U.S. economy to experience above-average growth in 2022. In September, U.S. Federal Reserve Board members and Federal Reserve Bank presidents predicted that U.S. real GDP will increase by 3.8% next year (mean of individual forecasts). In October, The Conference Board also estimated that real GDP will grow 3.8% in 2022. 

Several Wall Street economists tracked by CNBC and Moody's Analytics are predicting GDP growth of 3.9% in 2022 (average of individual forecasts).

To put these forecasts in perspective, many economists believe that the maximum sustainable growth rate of the U.S. economy (measured by real GDP) is 2% - 3%.

Unemployment

The U.S. unemployment rate has fallen dramatically since the pandemic high of 14.7% in April 2020. Last month, it stood at 4.6%, according to the U.S. Bureau of Labor Statistics.

Most economists expect the unemployment rate to continue declining in 2022. For example, the Federal Reserve is now estimating that the average unemployment rate in the fourth quarter of 2022 will be 3.8%. The Conference Board is forecasting that the unemployment rate will fall from 4.8% in the fourth quarter of this year to 4.1% in the second quarter of next year.

Consumer Spending

Consumer sentiment declined sharply in August of this year and remained low in September and October, according to the University of Michigan's Index of Consumer Sentiment. Many economists have attributed this decline in consumer confidence to the summer-early fall surge of COVID-19 cases fueled by the Delta variant. In the October report, the University of Michigan researchers noted that the continuing low level of consumer optimism was primarily due to growing concerns about inflation.

Despite these downbeat readings on consumer confidence, most forecasters expect consumer spending to be strong next year. For example, The Conference Board expects real consumer spending to increase at annualized rates of 4.2% in the first quarter and 3.5% in the second quarter of 2022. And Deloitte predicts that real consumer spending will increase by 3.5% over all of 2022.

Business Investment

Historically, business investment levels have been closely correlated with CEO confidence about future economic and business conditions. This relationship bodes well for business investment in 2022. In the latest McKinsey Global Survey of business executives, 51% of North American respondents said they expect economic conditions in their home country to improve over the next six months.

The Conference Board is estimating that "nonresidential investment" will increase at annual rates of 5.0% in the first quarter and 5.2% in the second quarter of next year. For all of 2022, Deloitte is forecasting that "real fixed business investment" will grow 3.2%.

Inflation

Taken together, these forecasts suggest that the overall U.S. economy will continue to be in full-blown recovery mode in 2022. If these forecasts are accurate, most B2B companies should be operating next year under business conditions that are generally favorable.

But there is one storm cloud on the horizon that has recently become more concerning . . . inflation.

In the twenty-first century, inflation has largely been a non-issue for most U.S. businesses and consumers. From 2000 through 2020, the average annual change in the U.S. Consumer Price Index (CPI) - the rate of inflation - was 2.48%.

In contrast, the CPI increase over the twelve month period from October 2020 through September 2021 was 5.4% (all items, not seasonally adjusted), according to the U.S. Bureau of Labor Statistics. The Federal Reserve has taken the position that this recent inflation will be "transitory," but many economists are now contending that higher inflation will be more persistent than the Federal Reserve expects.

The inflation occurring now is being driven primarily by supply chain disruptions that are affecting a significant (and growing) number of products. These supply disruptions are creating shortages and driving up prices at the producer level. For the twelve month period from October 2020 through September 2021, the U.S. Producer Price Index (final demand, not seasonally adjusted) increased 8.6%, according to the U.S. Bureau of Labor Statistics.

The Federal Reserve maintains (and many economists agree) that inflation will recede toward more "normal" levels in 2022. At present, the major uncertainty is how soon the decline will begin and how far the inflation rate will fall. If inflation remains elevated for a significant part of 2022, the other economic indicators discussed in this post could turn out to be less positive than the latest forecasts suggest.

Image courtesy of Fertile Ground via Flickr (CC).

The "Now-Next-New" Approach to Marketing Resource Allocation

By now, most B2B marketing leaders are well into their planning for 2022, and some of the most important and difficult decisions they will be required to make during the planning process involve the allocation of marketing resources (money, people, time, etc.).

Resource allocation is a challenging part of marketing planning for several reasons. First, regardless of company size, the resources available for marketing are rarely sufficient to enable marketing leaders to do everything they'd like to do. Therefore, choices must be made, and the task for marketing leaders is to deploy their finite resources in ways that will do the most good.

Deciding how to invest limited resources has also become more complex because today's marketing leaders have more options than ever before. The number of marketing channels, techniques and marketing technology solutions has grown dramatically over the past several years.

Resource allocation decisions are further complicated by the need to produce short-term results, while simultaneously laying the foundation for success in the future. Because customer expectations and communication preferences are always evolving, marketing tactics that are highly effective today may be less effective in the future, while tactics and capabilities that aren't important today may become key to future success.

Lastly, resource allocation is challenging because marketing leaders are constantly hearing about new marketing channels, tactics and technologies, all of which are touted as the "next great thing" in marketing.

It's no wonder, therefore, that many marketing leaders say resource allocation is the hardest part of their job.

The 70-20-10 Rule

Fortunately, there's a rule of thumb that marketing leaders can use to address resource allocation challenges. It's called the 70-20-10 rule or sometimes the now-next-new rule, and it's been used for a variety of business purposes. Many companies have used it to manage innovation resources, and Coca Cola reportedly used a version of the rule for years to inform marketing investment decisions.

Here's how the rule works.

The 70 ("Now") - The marketing version of the 70-20-10 rule states that 70% of a company's marketing resources should be devoted to capabilities and programs with a well-established track record of acceptable performance. These will typically include marketing channels, tactics and technologies the company is already using.

The rule doesn't mean that companies should automatically "keep doing what they're already doing." It means marketing leaders should evaluate how well their "bread and butter" tactics are performing and continue investing in those that are delivering acceptable results.

The primary goal of these capabilities and programs is to drive incremental performance improvements in the short term, i.e. the now.

The 20 ("Next") - According to the 70-20-10 rule, 20% of a company's marketing resources should be devoted to emerging marketing channels, tactics and technologies. This category typically includes practices and capabilities that a growing number of  other companies are using successfully and that are or may be nearing mainstream adoption.

Investments in this category frequently relate to capabilities that will become critical to a company's success in the near-term future, or next.

The 10 ("New") - The remaining 10% of marketing resources should be devoted to new channels, tactics and technologies that have just appeared on the scene. These investments enable true marketing innovation to occur, but they are also largely untested activities or capabilities. They may or may not produce significant short-term results, but they have the potential to become productive in the intermediate- or long-term future.

Caveats

As with other rules of thumb, marketing leaders should view the 70-20-10 rule as a guide rather than a precise prescription. The specific percentages in the rule may not be appropriate for every business.

It's also important to recognize that like all business rules of thumb, the 70-20-10 rule is not useful for all resource allocation decisions. For example:

• The rule does not address how resources should be allocated within each major resource category - the 70%, the 20% and the 10%.
• The rule is not designed to guide the allocation of resources between brand building and demand generation activities and programs.
• The rule may not be appropriate if a company's current marketing efforts are significantly underperforming. In those cases, marketing leaders may need to make more drastic changes than the rule would suggest.