Four Strategic Lessons

By: Dave Hochman, founder of DJH Marketing Communications Inc.

In 2010, a new category in CPG emerged, one that quickly garnered the attention of the beverage, c-store and specialty food trades.

The category was termed “relaxation” and it was originally positioned as a diametric opposite to the “energy” category. One-ounce plastic shot bottles with brand names like RelaxZen, iChill and DreamWater quickly adorned store shelves. Even though the consumer demand for such products was (and still is) characterized as unproven at best, that didn’t stymie a steady flow of entrepreneurs, investors, distributors and retailers from battling it out for market share, with the big prize being a position on the ground floor of the next big thing.

The business and trade media abounds with success stories in the energy segment of the beverage category. Relaxation has evolved in different way. According to a White Paper published by FONA International, launches of “drinks described as supporting relaxation have remained fairly steady these past four years with an average of 230 launches per year between 2008 -2011.”

As of 2012 however, it is clear to all stakeholders that many more brands and companies have packed it in than have been able to resonate with North American consumers, and the ones that are still around remain sorely challenged in terms of gaining traction in the marketplace. However, in the words of Bill Gates (no slouch in the entrepreneur department) “it’s fine to celebrate success, but it is more important to heed the lessons of failure.”

For the purposes of this article, one could pretty much apply to any start-up that wants to penetrate the beverage, c-store or specialty foods categories these four lessons:

Lesson #1: Don’t try to grow too big too fast

In the late ‘00s, as previously noted, research reports from reputable sources began to talk about and predict growth for the relaxation category in the U.S. By 2009, the value of the category (including both shots and beverage) was estimated at about $50 million annually, growing 30%+ per year. Too much growth too fast doesn’t sound like a lesson that belongs in a cautionary tale. What supplier doesn’t dream of getting that huge order from a giant national chain? We should all have such problems, eh? In reality, when sales outstrip production ability, all forms of efficiency and ability to control overhead costs go out the window, and after the dust clears, all that’s left is a bad reputation (yours). A supplier that’s ill equipped to meet customer demand is useful to no one, no matter how great his or her product may be.

Lesson #2: Don’t fixate about the competition

As a veteran PR and Marketing professional, I can attest that not much commands more attention from startup stakeholders than a well-written competitive analysis. If one were considering whether to invest in, work for, or sell the products of a startup company, what could be more helpful in that decision process than a clear and credible assessment of the strengths and weaknesses of current and potential competitors? Plus, it’s actually pretty fun way to think of business. You and your comrades on a mission to crush the competition. So, lesson #2 is incongruent with reality, it would seem. Such is the life of an entrepreneur. Competitive runners like to use the expression “running their own race.” What most of them are conveying here is an intention to rely on their own individual perception of their effort and measure it against their remaining reserves of energy instead comparing to the other runners. The goal here is to pace themselves through the race and not allow other runners to determine their pace. Consider the fact that in a fast-growing category, where there is a lot of marketing money being thrown around and PR noise being made, a fixation on what the other guys are doing can easily lead to losing sight of your own company’s goals and objectives.

Lesson #3 Don’t have an ad hoc marketing plan

There are two key components of a completed Marketing Plan – a Situation Analysis, which is a document comprised of the “reasoning” behind launching your product and company. The entrepreneur will conduct (or commission) research that provides data and information about the cultural, economic, demographic, technological, and political and other external forces that will have an impact on your product. The other key component is the Marketing Plan itself, which presents the goals and objectives along with the strategies, and tactics to achieve them, for a specific timeframe (typically one year). Each plan is different and unique and no plan is executed without mid-course changes and corrections, however in general terms, the nucleus of most marketing plans are the answers to the below questions…

•What business objectives do you expect to achieve?

•What exactly do you sell?

•Who are your customers?

•Why should they buy your product or service rather than your competitors’?

•How will you communicate your product or service to your customers?

•How are you going to measure your progress so you can glean data and information from the experience? 

An ad hoc marketing plan is a makeshift unstructured document that the entrepreneur hopes will at best enable an improvised reaction to external conditions.

A solid (non- ad hoc) Marketing Plan takes a great deal of time, disciplined lockstep effort and financial resources to develop. Most entrepreneurial ventures will have serious deficiencies in one or two of these areas, which is of course why many entrepreneurs unfortunately (and erroneously) might feel constrained to relying on an ad hoc marketing plan.

Lesson #4 Don’t spend more than you can afford (don’t be too cheap either)

Evaluating marketing budgets is difficult for startup brands, because it can seem like working in a vacuum. Some startup brands will assume that if a modest amount of money spent will garner a real, measurable return on the marketing investment, then an enormous amount spent will produce exponentially impressive results. At the other end of the spectrum, some startups will assume that as long as the product is superior to the competition and priced correctly, adds great customer service, and simple media buzz combined with word-of-mouth, it will set off a wild frenzy of customers climbing over each other to get to your products. Both approaches are potentially disastrous.

Spend something on marketing. Anything. Whatever the amount, the key factor determining marketing success is an ongoing analysis of the effectiveness of different types of marketing. Cost Per Acquisition (CPA), Cost Per Conversion (CPC), Revenue To Cost Ratio (RTCR) etc.…whatever the formula used to calculation the overall Return on Marketing Investment (ROMI) the important thing to remember is to estimate your costs up front and then research the results of any campaign or program to determine if ROI was met.

Final thought: One constant theme that threads its way through all these lessons is the importance of analysis. Creativity, passion and ideation are absolutely all crucial for creating a successful product, however, deemphasizing or ignoring analytical thinking won’t defy the harsh reality of the marketplace.

Dave Hochman is the founder of DJH Marketing Communications Inc., a PR, Content & Social Media agency. DJH has serviced numerous clients in the beverage, C-Store or specialty foods industries. Contact him at djhochman@djhmarcom.com

 

 

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