27 October 2011
Thoughts on balancing current customers and the company
product or service portfolio with new areas of growth: can
these be reconciled - and what does it require to balance
them in terms of structure and culture?

Everything we do in marketing is to:
• Attract more customers.
• Retain existing customers with the right profile.
• Grow the revenue of existing customers.
• Grow the profit margin/ customer.
• Grow the asset value of the business. This is a function of the number, value and
profit margin of customers and the strength of the brand/ cost structure of the
business.
All the marketing metrics we put in place are diagnostic tools we use to
understand why we are growing - or not growing - relative to the above
objectives - and thereby align our operations with our strategy.

It is true that:
• Outside of size, the only ways to achieve superior performance are:
– By having a niche focus;
– By creating exceptional products and services;
– By being different enough so that consumers will pay for it;
– By changing the competitive paradigm.
• Whilst the first three makes a company competitive, the last one makes a
company leapfrog competitors:
• The top 20 companies in the Fortune 2010 list of fastest growing companies
received $3,40 in incremental market capitalisation for every $1 of revenue
growth.
• For the companies that created new categories, this was $5,60!

Let us look at the traditional Ansoff matrix to balance growth: companies
balance attracting new customers with launching new products and services.
Market
extension
Market
penetration
Product
development
Diversification
Markets
Products
Increasing technological
new-ness
Increasing market new-ness
Aim to saturate
the market
(or all segments)
Extend
existing products
to new markets
and/ or segments
Sell new products to
existing markets
(or segments)
Sell new products to
new markets
(or segments)

Let us introduce category creation as a major new area of growth. This requires
radical thinking, not easy to reconcile with traditional thinking and operations.
Market
extension
Market
penetration
Product
development
Diversification
Markets
Products
Increasing technological
new-ness
Increasing market new-ness
Category
creation
Incremental innovation
Sell new
products to
new markets
and create
new markets
altogether
Most companies try and manage
existing customer and product/
service revenue with new
revenue from new customers
and products: the operational
requirements for these are very
different. It is unlikely they will
both co-exist with ease.

Levels of profitability by type of innovation: if you compare where the exponential
benefit to profitability is largest, it is within niche markets, products with regular
incremental innovation and revolutionary new products or services.
Degree of competitiveness
Low – commoditised Highly
differentiated
Profitability
Commoditised –
most airlines
Differentiated offers,
i.e. better service
Niche markets
New categories
Revolutionary new products
High
margin
spaces
Moderate to fair
margin spaces
Low margin
spaces, only
competitive
advantage
volume

Profitability growth should be exponential. If we compare Ansoff with what
we learn about incremental profitability, we can hypothesize:
Market
extension
Market
penetration
Product
development
Diversification
Markets
Products
Increasing technological
new-ness
Increasing market new-ness
Category
creation
Incremental innovation
Exponential increases in profit margin:
more customers at the same rate of
profitability and resource utilization will
increase revenue and the magnitude of
profit, whilst incremental and radical
innovation will lead to an exponential
growth in profit margin.

One growth area focus on resource optimisation(processes & control), the
other on brand value proposition optimisation(vision, innovation &
collaboration).
Market
extension
Market
penetration
Product
development
Diversification
Markets
Products
Increasing technological
new-ness
Increasing market new-ness
Category
creation
Incremental innovation
Brand value proposition
renewal
Resource optimisation
Better capacity
utilisation: more
customers at the same
or a slightly higher
cost-base.
The same or more customers with
incremental or radically different
new products and services, at higher
margins and most likely with
increases in the cost structure of the
company. In the instances of radical
products, these will be new business
units.

The different areas have different organisational requirements. It is important
to acknowledge that and structure accordingly. This will also have cultural
implications.
Market
extension
Market
penetration
Product
development
Diversification
Markets
Products
Increasing technological
new-ness
Increasing market new-ness
Category
creation
Incremental innovation
Greater collaboration &
technocratic focus, less
autocracy, a commitment to
ongoing improvement
Clear management
structures, processes &
controls; internal
focus, even degree of
autocracy
Visionary leadership, networks
of influencers and
collaborators, collaborative
management
approach, working with small
independents
A lean operational
“machine” produces
standardised
products and services
using standardised
structures, processes
and trained staff.
Deviation leads to
inefficiencies and a
breakdown in quality.
Cost control
imperative.
Radical innovation requires new
people & approaches. Traditional
structures can kill such innovation.
Often these needs to be in different
companies.
Incremental
innovation
requires
adherence to the
core customer
and business

How do we balance current growth with potential growth?
• Separate incremental innovation: making existing products better, with radical
innovation: creating new categories.
• The first one uses new technology to “update” features and benefits of
products and services for consumers (i.e. a new Gillette razor blade).
• The latter uses existing or new technology to design new categories.
• These two areas are hardly ever able to sit side-by-side, the latter requires
different ways of thinking and doing. That is why companies like P&G uses
small companies to do this, or Apple uses applications designers that do not
work for them. Verganti says that companies that are very successful at this
use influencers and collaborators extensively. Consumer research using
traditional approaches are not that useful here.
• Incremental innovation is easier: it is updating existing products and services
to make the delivery better for consumers. Here the secret is to be first, not
second or last. Traditional consumer research is more useful here.
• Generally, experiential and experimental research is great for radical
innovation.