7 MODERN MARKETING FRAMEWORKS EVERY STARTUP NEEDS TO KNOW

As a young marketer navigating the digital landscape, I love frameworks. Not only do they help me plan and prioritize, but they help me visualize how everything I’m working on fits together.

No, I won’t be talking about (and I’m looking at you, classically trained marketers) the 4Ps, Porter’s 5 forces, or SWOT analyses. Sure, those frameworks have their place, but they don’t provide much direction for startups looking to focus their energy on growth. Plus, they’re getting pretty old.

The frameworks below were developed by modern marketing gurus. Together, they’ll help you make a growth strategy, select traction channels, and influence your customers’ behavior.

Growth Frameworks

Let’s start off with some growth frameworks. These models will help you determine how to grow, when to grow, and what metrics you should be tracking.

1. The Startup Pyramid

Sean Ellis (CEO of Qualaroo, godfather of growth hacking) uses this framework when thinking about startup growth. This one is great because it gives you a rough game plan depending on what stage your business is in. The pyramid is comprised of three stages:

• Product/Market Fit: Appropriately at the base of the pyramid, the first and most fundamental part of the model is achieving product/market fit. The idea behind this is that you should never waste resources on growing something that people don’t want. If you go down that path, you’ll just die trying.
• Transition to Growth: Once you know you have something people want, it’s time to transition to growth. This part of the model involves understanding what makes your product valuable to people and how you can get more people to experience this value. More specifically, you’re setting yourself up for success in the next phase by maximizing your conversion rate.
• Growth: Now you’re finally ready to put the gas on some growth channels and bring on the traffic. This stage begins with testing channels and analyzing their performance. After that, you’ll want to optimize and double-down on the high performers. As for selecting channels in the first place, I’ll dive into some other frameworks that will help us with that later.

(http://www.startup-marketing.com/the-startup-pyramid/)

2. Pirate Metrics: “AARRR!”

Dave McClure (Founder of 500 Startups) developed Pirate Metrics to guide startups on their quest to acquire and convert customers. I love this framework because it’s easy to see how a user might go through this funnel, and it shows you where your metrics are suffering the most.

Let’s take a look at the basics:

• Acquisition: How do users find you in the first place? Think of your growth channels. This could be from paid search, a Facebook ad, a piece of content, etc.
• Activation: Did users actually do anything once they landed on your site? While user activation will be defined differently for each business, this could be as simple as signing up for an account, to something more involved like completing a profile.
• Retention: Do users come back? Here you’ll have to define what it means for a user to be inactive. For your business, this could mean a user that hasn’t made a purchase in a two-month period. Calculate your churn rate and, as a starting point, make sure it’s at a good level for your industry.
• Revenue: How do you make money? Of course, all of this is pretty pointless if you don’t have a way to make money. Here you can look at metrics like customer lifetime value(LTV), conversion rate and shopping cart size.
• Referral: Do users tell others about your product? If they do, you’re benefitting from some degree of virality. This magnifies the effect of any of your acquisition efforts, and is particularly useful if you engage in paid acquisition. It effectively lowers your customer acquisition cost (CAC) because every user obtained brings on more users themselves.

(http://500hats.typepad.com/500blogs/2007/09/startup-metrics.html)

3. Lean Analytics Stages

In their book Lean Analytics, Alistair Croll and Ben Yoskovitz present their own framework called Lean Analytics Stages. Their model combines elements from a number of different frameworks, including the two above. In their view, startup growth is best broken down into five key stages:

• Empathy: The purpose of this stage is to inform the development of your minimum viable product (MVP). The metrics at this stage are mostly qualitative, since you’re empathizing with your customers and listening to their feedback. You’re ready for the next stage when you’ve identified a problem that you know you can solve profitably in a sizeable market.
• Stickiness: Now you need to build something that keeps people coming back. Engagement and retention are the focus here as you iterate your MVP to optimize these metrics. You’re ready for the next stage once you’ve got an engaged user base and a low churn rate.
• Virality: Before throwing money into advertising, you’ll want to maximize the growth you get from existing customers. As I mentioned before, virality helps you get more out of your marketing dollar. Once you’re seeing a good amount of organic growth, you’re ready for the next stage.
• Revenue: Once again, you’ve gotta make some money. On top of that, you need revenue coming in to fuel customer acquisition efforts. This is where you’ll be tweaking your business model to prove you can make money in a scalable way. CAC and LTV are important metrics here as you ensure customers bring in more money than they cost to acquire. When you’ve reached your revenue and margins goals, you’re ready to scale this thing.
• Scale: As a company that now knows its product and market very well, efforts will now be focused on making more money from your current market and/or entering new markets.

Channel Selection Frameworks

With so many possibilities and a million things to do, it’s hard to decide where to put your marketing efforts. These frameworks will help you find your killer acquisition channels.

4. The ICE Score

Here’s Sean Ellis with another dose of genius — the ICE score. I love this one because it’s a quick and dirty way to evaluate potential growth channels. All you have to do is ask yourself three questions:

• What will the impact be if this works?
• How confident am I that this will work?
• How much time/money/effort is required?

Let’s put this in context. When Airbnb first came up with the idea to integrate with Craigslist, the potential impact was undeniable. If this worked, they’d tap into Craigslist’s massive user base. They were confident in the idea, since they had team members that could pull it off, and no user would say no to more traffic on their listings. However, this plan would require a fair amount of effort from their team to get the integration up and running. Ultimately, Airbnb went for it due to the potential impact and their confidence in the idea — and it definitely paid off!

There’s two ICE frameworks. This one helps you prioritize what to test first by: measuring the impact of the test (impact), confidence level in the test working (confidence), and how easy the test is to implement (ease).

The second ICE framework helps you prioritize by: measuring growth and company benefits (impact), determining the cost of implementing (cost), and understanding the amount of resources required to test (effort).

5. The Bullseye Framework

The Bullseye Framework, developed by Gabriel Weinberg and Justin Mares for their bookTraction: A Startup Guide to Getting Customers, gives us a more in-depth model for channel selection. Their five step framework breaks down the process of finding the one channel you should focus on (bullseye!):

• Brainstorm: Naturally, you’ll have biases towards certain traction channels. To avoid missed opportunities, they suggest thinking of at least one idea for each of the 19 traction channels. I won’t list those here, but Traction covers all of them in detail!
• Rank: This step has you thinking critically about your mountain of ideas. The goal is to categorize ideas as either high potential, possibilities, or long-shots.
• Prioritize: Now you want to re-think your categories once again, carefully selecting your top three high potential channels.
• Test: With your three ‘high potentials’, you can now devise cheap tests to gauge feasibility. The goal here is to find which one of these channels is worth your undivided attention.
• Focus: Armed with your test results, start directing resources towards your most promising channel. You’ll want to squeeze every bit of growth out of this channel by continually optimizing results through experimentation.

Behavioral Frameworks

To close out this list, let’s take a look at two frameworks you can use to influence user behavior. You’ll notice these tie in nicely with key growth concepts we talked about earlier — stickiness and virality.

6. The Hook Model

User psychology guru Nir Eyal presents the Hook Model in his recent book, Hooked: How to Build Habit Forming Products. He suggests that the products we use regularly work their way into our lives by cultivating habitual user behavior. He also believes that these habit forming products follow a similar iterative cycle:

• Trigger: Bringing a user into the cycle starts with a trigger. At first these will be in the form of external triggers such as push notifications, but as the cycle repeats they will convert into internal triggers that will continue to drive the user forward. Since negative emotions are often internal triggers, one example would be a pang of loneliness followed by the urge to jump onto Facebook.
• Action: The easier it is to do something, the more users will do it. Habit forming products make action easy.
• Variable reward: To create a habit, it’s necessary to reward the action that was triggered. However, research shows that humans are motivated by the anticipation of a reward. By adding variability into the reward system, you increase anticipation. Think about the sweet sweet anticipation that you might have a notification waiting for you on Facebook.
• Investment: Finally, to solidify the habit, users need to invest themselves in your product. On Facebook we build a network of friends, and on Instagram we have collection of photos. These investments make it hard to leave.

7. STEPPS

Jonah Berger, author of Contagious: Why Things Catch On and creator of STEPPS, says it best: “Virality isn’t luck. It’s not magic. And it’s not random. There’s a science behind why people talk and share. A recipe. A formula, even.” Luckily, you can use this formula to create your own contagious content:

• Social currency: People care about how they are perceived by others. Use this to your advantage, and people won’t be able to resist talking about you. Invite-only web apps harness this by making users feel like insiders.
• Triggers: If people are frequently reminded of your product, they’ll talk about it more. Jonah notes the example of Rebecca Black’s song “Friday” having a huge spike in plays on — when else? — Fridays.
• Emotion: Content is more likely to go viral if it is highly emotional. The type of emotion matters too — something that evokes anger (a high arousal emotion) is more likely to be shared than something that evokes sadness (a low arousal emotion).
• Public: The more public something is, the more likely people will talk about it. Think about the ALS Ice Bucket Challenge: the creators were able to take something that was normally private (donating to charity) and make it very public. Genius.
• Practical value: People like to share things that are useful. Make high value content and they’ll pass it on. Like this article for instance! 
• Stories: People like to tell stories. Jonah describes stories as your Trojan Horse—build compelling narratives, and they’ll carry your idea along for the ride.

While this is just a quick overview of some of my favorite modern marketing frameworks, you probably have an idea of how each one might apply to you. I’d recommend diving deeper into each one and thinking about how you can apply them to your business.

Lloyd Alexander is a recent marketing grad who’s excited about technology and digital marketing.

8 Simple Digital Marketing Ideas For Entrepreneurs and Small Businesses

You can have the best product in the world but if nobody knows about it, it isn’t going to do anybody any good. Digital marketing is a necessity whether you’re a multinational corporation, a mom-and-pop shop, or a lone entrepreneur striking out on your own.

1. Analytics  – The most important tool for any marketer is data. When done properly, an analytics platform can tell you key insights about what marketing efforts are performing, will identify customer problems with you your product/site, and will force you to think about what the key metrics for your business are. When you have pile of money and unlimited ad budgets, digital marketing is easy. When you’re a small company, choosing how to spend your marketing dollars and time become a lot more important.  Although there are thousands of marketing options out there, here is a list of options that are cost efficient, should drive customer growth, and should set you up with a solid marketing infrastructure. Resources: Google Analytics (free), Kissmetrics (plans start at $150/month), RJ Metrics (has special plans for startups).

2. Search Engine Optimization (SEO) – Organic search is a highly cost effective marketing channel for most businesses.  Despite this, a lot of people take for granted that the search engines will just be able to find and index their site. While this may be true to some extent, you can improve your chances of appearing in results for key phrases by applying a few search engine optimization tactics. A good first step is to set up your site in Google and Bing’s webmaster tools, which will help to identify any issues of the site that are preventing it from being indexed and will also give you insight into the types of keywords for which your site and content are ranking. Resources: Google Webmaster Tools, Bing Webmaster Tools, Moz, Search Engine Land

3. Start a Blog – A blog can educate users about your product and services, help to establish you as a thought leader in a particular field, and can help your site appear for key terms in search engines. When setting up your blog, think about the type of customers you would like to reach and what sort of information would be useful to them. Experiment with content to see what resonates and drives conversions. Resources: WordPress, Blogger, Hubspot

4. Video Search – When people think about Search engines, they typically think about text.  But written content is only one part of the search universe. Youtube is actually thesecond largest search engine in the world.  It’s very easy and inexpensive to set up a video channel. In terms of content, you could created simple videos featuring product demos, tips and tricks, how-to videos, customer testimonials, webinars and Q&A events. Resources: YouTube, Vimeo

When people think about Search engines, they typically think about text.  But written content is only one part of the search universe. Youtube is actually the second largest search engine in the world.

5.  Social Media – 73% of online adults use some type of social media network. Social media sites like Twitter, Facebook, Linkedin can be great vehicles for connecting with targeted audiences, gaining customer feedback, for inserting yourself into relevant conversations, and for managing your brand’s reputation. Resources: Facebook, Twitter,Google+, Pinterest, Instagram, LinkedIn

6.  Trending Topics – Most social networks have tools that tell you which topics are especially popular at a given moment. When a topic is trending, it means that there is a big audience discussing it.  If your product or service is in some way related to a particular trending topic, you might want to consider inserting yourself into that conversation —  just be mindful that you do so in a respectful and appropriate way. Resources: Google Trends, Facebook Audience Insights, Twitter Trends

7.  Online Community – No matter what industry you work in, there is bound to be an online community based around that subject. If there isn’t, create one.  Online communities can be a great way to establish yourself as a thought leader in a particular industry as well as a way to gain insights about how potential customers talk about your product or service, how they view similar products, and understand what their industry concerns are.  If someone in an online group asks a question that is relevant to your company, feel free to mention your service, but just be sure that you understand the tone of the community and that you are actually answering the question and not just plugging your product. Resources: Quora, Linkedin Groups, reddit, Google Groups

8.   Partnerships – Look for organizations, publications, companies, podcasts and websites that are complimentary to your services. Reach out to them to see if you there is an opportunity for you to work together. Some examples would be offering to host a webinar or participate in an ask-me-anything session on the company’s social media channels, or to guest blog an article. Resources: Vary by industry

http://www.shakelaw.com/

ТОП-50 фармкомпаний мира по итогам 2014 года

Успешные продажи орфанных лекарственных препаратов, рекордные результаты в сфере слияний и поглощений, сделки по налоговой оптимизации, а также успешные стратегии по выходу на глобальные рынки – факторы, которые повлияли на состав ТОП-50 глобальных фармацевтических компаний в 2014 году.

Список ТОП-10 крупнейших фармкомпаний в мире пополнилась одним новичком – компанией Gilead Sciences, которая забралась на 9 строчку по итогам совокупных продаж в 2014 году, поднявшись с 18-го места в 2013 году. Своим взлетом компания обязана продажам франшизы на свой инновационный продукт, предназначенный для применения при лечении вируса гепатита С.

Общие продажи Gilead Sciences в 2014 году достигли отметки $24,5 млрд. Успех компании подтверждает эффективность выбранной ею стратегии фокусирования на узкоспециализированные и практически свободные ниши на рынке.

Компания Actavis стала второй по динамике роста, поднявшись с 24 места в 2013 году на 19-е – в 2014 благодаря оппортунистическому подходу при развитии бизнеса, а именно – крупнейшей в ее истории сделке по приобретению Allergan за $66 млрд в 2014 году. После завершения процедуры слияния бизнесов (и согласно официальному пресс-релизу компании от 15 июля 2015 года) Actavis приняла решение о смене бренда на Allergan.

На данный момент компании большой фармы окончательно укрепили свое присутствие практически на всех развивающихся рынках (т.н. «pharmerging markets»). Несмотря на то, что рост потребления на таких рынках, как Бразилия и Китай заметно снизил темп, компания AbbVie сумела не только удержаться на десятой позиции, но значительно усилила свое глобальное присутствие.

Ниже представлен список ТОП-50 фармацевтических компаний мира, а также их ключевые продукты.

Источник: PharmExec.com, PWC

Navigating the Dozens of Different Strategy Options

Martin Reeves 

Knut Haanaes 

Janmejaya Sinha

In this adaptation from the new book, Your Strategy Needs a Strategy (HBR Press, 2015), BCG strategy experts make sense of the all the different, and competing, approaches to strategy: Which strategy is right for your business? When and how should you implement it? The practical tool offered here helps executives answer such questions as: What replaces planning when the annual cycle is obsolete? Where can we — and when should we — shape the game to our advantage? How do we simultaneously implement different strategies across different business units?

Executives are bombarded with bestselling ideas and best practices for achieving competitive advantage, but many of these ideas and practices contradict each other. Should you aim to be big or fast? Should you create a blue ocean, be adaptive, play to win — or forget about a sustainable competitive advantage altogether? In a business environment that is changing faster and becoming more uncertain and complex almost by the day, it’s never been more important to choose the right approach to strategy.

And it has never been more difficult. The number of strategy tools and frameworks that leaders can choose from has grown massively since the birth of business strategy in the early 1960s (see the chart below — and keep scrolling, you’ll get to the end eventually). And far from obvious are the answers to how these approaches relate to one another or when they should and shouldn’t be deployed.

It’s not that we lack powerful ways to approach strategy; it’s that we lack a robust way to select the right ones for the right circumstances. The five forces framework for strategy may be valid in one arena, blue ocean or open innovation in another, but each approach to strategy tends to be presented or perceived as a panacea. Managers and other business leaders face a dilemma: with increasingly diverse environments to manage and rising stakes to get it right, how do they identify the most effective approach to business strategy and marshal the right thinking and behaviors to conceive and execute it, supported by the appropriate frameworks and tools?

To address the combined challenge of increased dynamism and diversity of business environments as well as the proliferation of approaches, we propose a unifying choice framework: the strategy palette. This framework was created to help leaders match their approach to strategy to the circumstances at hand and execute it effectively, to combine different approaches to cope with multiple or changing environments, and, as leaders, to animate the resulting collage of approaches.

The strategy palette consists of five archetypal approaches to strategy — basic colors, if you will — which can be applied to different parts of your business: from geographies to industries to functions to stages in a firm’s life cycle, tailored to the particular environment that each part of the business faces.

Five Strategy Environments

Strategy is, in essence, problem solving, and the best approach depends upon the specific problem at hand. Your environment dictates your approach to strategy. You need to assess the environment and then match and apply the appropriate approach. But how do you characterize the business environment, and how do you choose which approach to strategy is best suited to the job of defining a winning course of action?

Business environments differ along three easily discernible dimensions: Predictability (can you forecast it?), malleability (can you, either alone or in collaboration with others, shape it?), and harshness (can you survive it?). Combining these dimensions into a matrix reveals five distinct environments, each of which requires a distinct approach to strategy and execution.

Each environment corresponds to a distinct archetypal approach to strategy, or color in the strategy palette, as follows: predictable classical environments lend themselves to strategies of position, which are based on advantage achieved through scale or differentiation or capabilities and are achieved through comprehensive analysis and planning. Adaptive environments require continuous experimentation because planning does not work under conditions of rapid change and unpredictability. In a visionary setting, firms win by being the first to create a new market or to disrupt an existing one. In a shaping environment, firms can collaboratively shape an industry to their advantage by orchestrating the activities of other stakeholders. Finally, under the harsh conditions of a renewal environment, a firm needs to first conserve and free up resources to ensure its viability and then go on to choose one of the other four approaches to rejuvenate growth and ensure long-term prosperity. The resulting overriding imperatives, at the simplest level, vary starkly for each approach:

• Classical: Be big.
• Adaptive: Be fast.
• Visionary: Be first.
• Shaping: Be the orchestrator.
• Renewal: Be viable.

Using the right approach pays off. In our research, firms that successfully match their strategy to their environment realized significantly better returns— 4-8% of total shareholder return — over firms that didn’t. Yet around half of all companies we looked at mismatch their approach to strategy to their environment in some way.

Let’s delve a little deeper to see how to win using each of the basic colors of strategy and why each works best under specific circumstances.

Classical

Leaders taking a classical approach to strategy believe that the world is predictable, that the basis of competition is stable, and that advantage, once obtained, is sustainable. Given that they cannot change their environment, such firms seek to position themselves optimally within it. Such positioning can be based on superior size, differentiation, or capabilities.

Positional advantage is sustainable in a classical environment: the environment is predictable and develops gradually without major disruptions.

To achieve winning positions, classical leaders employ the following thought flow: they analyze the basis of competitive advantage and the fit between their firm’s capabilities and the market and forecast how these will develop over time. Then, they construct a plan to build and sustain advantaged positions, and, finally, they execute it rigorously and efficiently.

Mars, the global manufacturer of confectionery and pet food, successfully executes a classical approach to strategy. Mars focuses on categories and brands where it can lead and obtain a scale advantage, and it creates value by growing those categories. This approach has helped Mars build itself into a profitable $35 billion company and multi-category leader over the course of a century.

Classical strategy is probably the approach with which you are the most familiar. In fact, for many managers, it may be the approach that defines strategy. Classical strategy is what is taught in business schools and practiced in some form in the majority of strategy functions in major enterprises.

Adaptive

Firms employ an adaptive approach when the business environment is neither predictable nor malleable. When prediction is hard and advantage is short-lived, the only shield against continuous disruption is a readiness and an ability to repeatedly change oneself. In an adaptive environment, winning comes from adapting to change by continuously experimenting and identifying new options more quickly and economically than others. The classical strategist’s mantra of sustainable competitive advantage becomes one of serial temporary advantage.

To be successful at strategy through experimentation, adaptive firms master three essential thinking steps: they continuously vary their approach, generating a range of strategic options to test. They carefully select the most successful ones to scale up and exploit. And as the environment changes, the firms rapidly iterate on this evolutionary loop to ensure that they continuously renew their advantage. An adaptive approach is less cerebral than a classical one—advantage arises through the company’s continuously trying new things and not through its analyzing, predicting, and optimizing.

Tata Consultancy Services, the India-based information technology (IT) services and solutions company, operates in an environment it can neither predict nor change. It continuously adapts to repeated shifts in technology—from client servers to cloud computing—and the resulting changes that these shifts cause in their customers’ businesses and in the basis of competition. By taking an adaptive approach that focuses on monitoring the environment, strategic experimentation, and organizational flexibility, Tata Consultancy Services has grown from $155 million in revenue in 1996 to $1 billion in 2003 and more than $13 billion in 2013 to become the second-largest pure IT services company in the world.

Visionary

Leaders taking a visionary approach believe that they can reliably create or re-create an environment largely by themselves. Visionary firms win by being the first to introduce a revolutionary new product or business model. Though the environment may look uncertain to others, visionary leaders see a clear opportunity for the creation of a new market segment or the disruption of an existing one, and they act to realize this possibility.

This approach works when the visionary firm can single-handedly build a new, attractive market reality. A firm can be the first to apply a new technology or to identify and address a major source of customer dissatisfaction or a latent need. The firm can innovate to address a tired industry business model or can recognize a megatrend before others see and act on it.

Firms deploying a visionary approach also follow a distinct thought flow. First, visionary leaders envisage a valuable possibility that can be realized. Then they work single-mindedly to be the first to build it. Finally, they persist in executing and scaling the vision until its full potential has been realized. In contrast to the analysis and planning of classical strategy and the iterative experimentation of adaptive strategy, the visionary approach is about imagination and realization and is essentially creative.

Quintiles, which pioneered the clinical research organization (CRO) industry for outsourced pharmaceutical drug development services, is a prime example of a company employing a visionary approach to strategy. Though the industry model may have looked stable to others, its founder and chairman, Dennis Gillings, saw a clear opportunity to improve drug development by creating an entirely new business model and, in 1982, moved first to capitalize on the inevitabilities he saw. By ensuring that Quintiles moved fast and boldly, it maintained its lead and leapt well ahead of potential competition. It is today the largest player in the CRO industry which it created and has been associated with the development or commercialization of the top fifty best-selling drugs currently on the market.

Shaping

When the environment is unpredictable but malleable, a firm has the extraordinary opportunity to lead the shaping or reshaping of a whole industry at an early point of its development, before the rules have been written or rewritten.

Such an opportunity requires you to collaborate with others because you cannot shape the industry alone—and you need others to share the risk, contribute complementary capabilities, and build the new market quickly before competitors mobilize. A shaping firm therefore operates under a high degree of unpredictability, given the nascent stage of industry evolution it faces and the participation of multiple stakeholders that it must influence but cannot fully control.

In the shaping approach, firms engage other stakeholders to create a shared vision of the future at the right point in time. They build a platform through which they can orchestrate collaboration and then evolve that platform and its associated stakeholder ecosystem by scaling it and maintaining its flexibility and diversity. Shaping strategies are very different from classical, adaptive, or visionary strategies—they concern ecosystems rather than individual enterprises and rely as much on collaboration as on competition.

Novo Nordisk employed a shaping strategy to win in the Chinese diabetes care market since the 1990s. Novo couldn’t predict the exact path of market development, since the diabetes challenge was just beginning to emerge in China, but by collaborating with patients, regulators, and doctors, the company could influence the rules of the game. Now, Novo is the uncontested market leader in diabetes care in China, with over 60 percent insulin market share.

Renewal

The renewal approach to strategy aims to restore the vitality and competitiveness of a firm when it is operating in a harsh environment. Such difficult circumstances can be caused by a protracted mismatch between the firm’s approach to strategy and its environment or by an acute external or internal shock.

When the external circumstances are so challenging that your current way of doing business cannot be sustained, decisively changing course is the only way to not only survive, but also to secure another chance to thrive. A company must first recognize and react to the deteriorating environment as early as possible. Then, it needs to act decisively to restore its viability—economizing by refocusing the business, cutting costs, and preserving capital, while also freeing up resources to fund the next part of the renewal journey. Finally, the firm must pivot to one of the four other approaches to strategy to ensure that it can grow and thrive again. The renewal approach differs markedly from the other four approaches to strategy: it is usually initially defensive, it involves two distinct phases, and it is a prelude to adopting one of the other approaches to strategy. Renewal has become increasingly common because of the number of companies getting out of step with their environments.

American Express’s response to the financial crisis exemplifies the renewal approach. As the credit crisis hit in 2008, Amex faced the triple punch of rising default rates, slipping consumer demand, and decreasing access to capital. To survive, the company cut approximately 10 percent of its workforce, shed noncore activities, and cut ancillary investment. By 2009, Amex had saved almost $2 billion in costs and pivoted toward growth and innovation by engaging new partners, investing in its loyalty program, entering the deposit raising business, and embracing digital technology. As of 2014, its stock was up 800 percent from recession lows.

Applying the Strategy Palette

The strategy palette can be applied on three levels: to match and correctly execute the right approach to strategy for a specific part of the business, to effectively manage multiple approaches to strategy in different parts of the business or over time, and to help leaders to animate the resulting collage of approaches.

The strategy palette provides leaders with a new language for describing and choosing the right approach to strategy in a particular part of their business. It also provides a logical thread to connect strategizing and execution for each approach. In most companies, strategizing and execution have become artificially separated, both organizationally and temporally. Each approach entails not only a very different way of conceiving strategy but also a distinct approach to implementation, creating very different requirements for information management, innovation, organization, leadership, and culture. The strategy palette can therefore guide not only the strategic intentions but also the operational setup of a company. The table below summarizes the key elements of the strategy palette and includes specific examples of companies using the five approaches.

The palette can also help leaders to “de-average” their business (decompose it into its component parts, each requiring a characteristic approach to strategy) and effectively combine multiple approaches to strategy across different business units, geographies, and stages of a firm’s life cycle. Large corporations are now stretched across a more diverse and faster-changing range of business contexts. Almost all large firms comprise multiple businesses and geographies, each with a distinct strategic character, and thus require the simultaneous execution of different approaches to strategy. The right approach for a fast-evolving technology unit is unlikely to be the same as for a more mature one. And the approach in a rapidly developing economy is likely to be very different for the same business operating in a more mature one.

Inevitably, any business or business model goes through a life cycle, each stage of which requires a different approach. Businesses are usually created in the visionary or shaping quadrants of the strategy palette and tend to migrate counterclockwise through adaptive and classical quadrants before being disrupted by further innovations and entering a new cycle, although the exact path can vary. Apple, for example, created its iPhone using a visionary approach, then used a shaping strategy to develop a collaborative ecosystem with app developers, telecom firms, and content providers. And as competitors jostle for position with increasingly convergent offerings, it is likely that their strategies will become increasingly adaptive or classical. Leaders themselves play a vital role in the application of the strategy palette by setting and adjusting the context for strategy. They read the environment to determine which approach to strategy to apply where and to put the right people in place to execute it.

Moreover, business leaders play a critical role of selling the integrated strategy narrative externally and internally. They continuously animate the strategy collage — the combination of multiple approaches to strategy — keeping it dynamic and up-to-date by asking the right questions, by challenging assumptions to prevent a dominant logic from clouding the perspective, and by putting their weight behind critical change initiatives.

To explore and apply these ideas to your own situation, we have developed a companion iPad app. To download the iPad app, visit Apple’s App Store and search for “Your Strategy Needs a Strategy.” You can also find it by visiting our website: www.bcgperspectives.com/yourstrategyneedsastrategy.

An HBR Refresher on Breakeven Quantity

Marketers often have to make the call on whether a certain marketing investment is worth the cost. Can you justify the price tag of the ad you want to buy or the marketing campaign you’re hoping to launch next quarter? One of the most straightforward ways to answer this question is to perform a breakeven analysis, which will tell you how many incremental units you need to sell to make the money back that you put in.

While the concept may be straightforward, the calculation and the assumptions underlying it are far from simple. I talked with Jill Avery, a senior lecturer at Harvard Business School and co-author of HBR’s Go To Market Tools, to better understand how to use this important calculation.

What is breakeven quantity (BEQ)?

“Breakeven quantity is the number of incremental units that the firm needs to sell to cover the cost of a marketing program or other type of investment,” says Avery. If the company doesn’t sell the equivalent of the BEQ as a result of the investment, then it’s losing money and it won’t recoup its costs. If the company sells more than the BEQ then it not only has made its money back but is making additional profit as well.

“It’s one of the more popular ways that managers calculate marketing ROI,” says Avery, pointing out that other common ones include calculating the investment payback period, calculating an internal rate of return, and using net present valueanalysis. “I like breakeven analysis because it is easy to understand and it’s often the simplest way to think about return on investment.” The other forms of ROI often require a more complex understanding of financial concepts such as the firm’s cost of capital or the time value of money.

How do you calculate it?

To figure out BEQ, start by setting up an equation where Total Revenue = Total Costs, which will mathematically represent the point at which profit is equal to zero, i.e., where you will break even:

Then you have to find a unit quantity — your BEQ — that makes both sides of the equation equal. The BEQ will be present on both sides of this equation because the number of units sold affects both the revenue the firm earns as well as the costs it must incur to earn it. Revenue is the unit quantity sold multiplied by the selling price per unit. To figure total costs you first multiply the unit quantity sold by the variable costs per unit, then you add the fixed costs. So it looks like this:

You then reorder the equation to solve for BEQ. Like this:

Note that Price per unit – Variable costs per unit is equal to the Contribution margin per unit.

So to calculate BEQ you need to know the fixed costs for your program and the contribution margin per unit.

Take this example of a company that sells flip flops from Avery’s teaching note, “Marketing Analysis Toolkit: Breakeven Analysis.”

The company sells each pair of flip flops for $24.00. The variable costs to make each pair of flip flops are $14.00. (Note: variable costs are per unit costs that vary depending on a company’s production volume. They rise when you increase production and fall when you decrease it.) The fixed costs to advertise the flip flops are $2,000. So, how many flip flops does the company need to sell to breakeven on its advertising expense?

First, look at fixed costs. No matter how many flip flops are sold the cost of advertising remains the same: $2,000. Note that most companies’ fixed costs are much more complex and often include rent, advertising, insurance and office supplies but since we’re trying to evaluate the BEQ for the $2,000 advertising campaign, we focus just on this number.

Then you take the price of the flip flops and the variable costs and put them into the equation like this:

BEQ = $2,000 / ($24-$14)

or

BEQ = 200 units

So if the managers at this flip flop company believe they will be able to sell more than 200 extra pairs of flip flops because of the advertising campaign, they will recoup their costs and it will be a worthwhile investment. But, if they don’t believe that the advertising campaign will drive enough incremental demand for flip flops, then they shouldn’t run it. It will not breakeven.

How do companies use BEQ?

The above is a simplified example but most companies use BEQ in a similar way. “It’s a pretty universal tool. It can be used to evaluate any investment from a marketing campaign to a decision about whether to build a new factory,” says Avery. However, she says, it’s particularly useful for marketing because it relates the cost of a marketing program to the program’s ability to affect consumer demand for a product. “It most closely relates one of our main goals in marketing, to generate demand, to the costs that we incur to achieve it.”

Among marketers, it’s most often used to do one of several things:

Assess the feasibility of a marketing expense, such as an advertising campaign (as we did in the flip flops example above). This is most common use, says Avery. Typically the campaigns are more expensive then the $2,000 the flip flop company was considering. So a manager may consider, If I’m going to spend $10 million on a marketing campaign, how many additional units of my product do I need to sell to breakeven on the investment? The formula will tell the manager how many units will result in $10 million in profit.

Managers will also use BEQ to assess the feasibility of a permanent price change, either an increase or a decrease. “Pricing changes are complicated because when you change price, you inherently effect demand. You have to think through what happens to demand before you can determine the effect of the price change on your business,” says Avery.

So the question for marketing managers here is How many more units of a product must be sold to compensate for the lower price? You can use the same BEQ equation above to determine how much additional demand you need to generate. You start by setting an equation with the current contribution margin equals the contribution margin with the new price:

For example, let’s say your current demand is 100 units at a price of $10.00, but you want to lower it by $2.00. If the product has a contribution margin of $5.00 (at the $10.00 price) and therefore $3.00 (at the $8.00) price, then the equation would look like this:

$5.00*100 units = $3.00*(100 + BEQ)

Then you solve for BEQ:

3*BEQ = 500 units – 300 units

BEQ = 200 units / 3

BEQ = 66.7 units

So you have to be confident that you will sell at least 67 additional units at the lower price (or 167 units in total) to justify the price decrease.

The calculation works similarly if you’re considering raising your price but instead of looking at the number of additional units you need to sell, you’re considering how many units can be sacrificed if you’re getting the higher price. So again, you set it up so the contribution margins are equal:

Contribution margin (at existing price) = Contribution margin (at new price)

Then, let’s say you wanted to raise your price by $2.00 and therefore your contribution margin at the $12.00 price would be $7.00.

$5.00*100 units = $7.00*(100 + BEQ)

Solving for BEQ:

7*BEQ = 500 units – 700 units

BEQ = -200 units / 7

BEQ = -28.6 units

In this case, you need to be sure that you will lose 29 units or fewer if you raise your price (or sell 71 units in total).

Marketing managers can also use BEQ to assess the feasibility of a short-term marketing expense, like a coupon promotion, or the feasibility of a new product introduction that will cannibalize existing product sales.

What are some of the common mistakes managers make when using BEQ?

First off, it’s important to keep in mind that the BEQ is a measure of the incrementalunits needed to be sold to justify the investment. So these are additional units that you have to sell because of the price decrease or the marketing campaign. “Some managers think, ‘Sure, we can do 200,000 units.’ But the real question is can you do what you did yesterday plus 200,000 units,” Avery explains. And for many managers, says Avery, determining what is incremental can be tough. Would you have sold the same amount without the coupon or the sales promotion? Or has the coupon forced people to “pantry load” — stock up on a product because it’s cheaper now? If razors are on sale at Costco some consumers will buy all the razors they need for the next year. “We want marketing investments to generate incremental demand and not cannibalize what we would sell anyway, switching tomorrow’s demand for today’s demand,” says Avery.

This is where “the art of marketing comes in,” she says. You have to look at the data available to you — including internal and external benchmarks — to assess whether you believe that you can sell that many more units. Avery suggests asking: What have we done before and what has that yielded? And what have competitors done and what has that done for them?

Another mistake that managers make is forgetting to consider the length of time it will take to hit the BEQ. “If the 200,000 additional units represents two months of sales, that may seem reasonable but if it will take two years to sell 200,000 units, that’s often a different story,” says Avery. This is where payback period comes in, and it can often be helpful to run a payback period analysis in conjunction with BEQ (for help on how to do a payback period analysis, check out the HBR TOOLS: Return on Investment).

There is also room for error in the various assumptions that go into the BEQ calculation. Avery says that the cost of the marketing program, for example, can be difficult to pin down ahead of time. She gives the example of a couponing program, where you won’t know the total cost until the redemptions come in. In these cases, you want to do a sensitivity analysis and run the calculation using several different numbers. “If you want to be conservative, overestimate the cost,” says Avery. “That will give you a higher BEQ number and therefore a higher threshold to meet.”

The biggest mistake people make, however, says Avery, is not even running a breakeven analysis. “Too often, marketing budgets are just spent because that’s the way we’ve always done business and there is little effort to justify the expense,” she says. Many managers don’t even run an ROI because the costs of programs and the incremental demand can be hard to determine ahead of time. “There’s often a lag time between when we spend and when we see results so programs can be hard to measure.” Even if the numbers are tough to get right in advance, Avery says, it’s simply good marketing management to understand how well you’re spending your dollars, even if you run the analysis in retrospect to help you make future decisions.

“Breakeven analysis imparts discipline into marketing decision making,” she says. You need to understand what you are trying to achieve, what it will cost you, and then how likely it is to succeed.

Amy Gallo is a contributing editor at Harvard Business Review and the author of the forthcomingHBR Guide to Managing Conflict at Work.