The Organic Growth Playbook

Activate High-Yield Behaviors To Achieve Extraordinary Results - Every Time

Bernard Jaworski, Bob Lurie

• Publisher: Emerald Publishing Limited
• Year: 2020
• ISBN:
  9781839826863
• Topic: Business
• Subtopic: Marketing Research
• Index: Business

Conventional marketing strategies that focus on product differentiation and positioning often fail to deliver faster growth. Jaworski and Lurie offer a novel approach to the problem of growth based on two simple but profound insights.

First, they demonstrate that in every purchase process there are a few high-yield customer behaviors that matter most in determining whether and what customers buy.

Second, they show how changing those high-yield customer behaviors can consistently drive faster revenue growth. Drawing on decades of client work, the authors provide a detailed, engaging account of a proven system for accelerating – or even doubling – growth. As evidence of its value, the system has been adopted by a host of Fortune 500 firms as their marketing and growth planning process.

This book forms part of the American Marketing Association (AMA) Leadership series: The Seven Problems of Marketing.

1

OVERVIEW OF THE ORGANIC GROWTH PLAYBOOK

A few years ago, Sam Wilcox, Vice President of launch products at one of the world’s largest life sciences companies, was in a tough spot. While the company’s newest drug, Terrafix,¹ had achieved revenues over $680 million in its first year after launch, its rate of growth had stalled. To make matters worse, the nearest competitor was investing heavily in promoting an alternative therapy, while another competitor was getting ready to launch a third product with a therapy similar to Terrafix. Senior management was pressuring Sam for a new, more aggressive go-to-market plan.

The Terrafix team had invested tremendous effort in developing a clear, differentiated product message – and it appeared to be working. Physicians were aware of Terrafix and it had a solid reputation as an effective, reliable therapy. It was positioned well versus its next best competitor. The drug was claiming a unique space in the minds of targeted physicians. Yet, for some reason, this wasn’t driving sales growth. When Sam reviewed the data, it showed that only a small fraction of the patient population at risk for the medical condition treated by Terrafix was getting a prescription for it. He knew something more had to be done.

To better understand the disconnect, Sam’s team mapped in fine, quantitative detail the various ways that patients and doctors interacted before, during, and after their annual physical exam. What they found through this study confirmed Sam’s hunch: many patients who were at risk for the disease were not receiving a diagnosis that would lead to a prescription. In fact, in most cases, doctors had performed a qualitative, subjective assessment that left them uncertain about the patient’s actual risk. And in the absence of a clear-cut diagnosis, most doctors chose not to treat with medication. By contrast, the team found that patients who had taken a newly available objective diagnostic test were four times more likely to receive a prescription for Terrafix. Simply put, when doctors could review an objective diagnostic test with a clear indication of disease, they took action. It became clear that the solution wasn’t to build a more differentiated position for Terrafix, but to get doctors to perform the diagnostic test.

In a significant departure from their initial launch strategy, the team made a choice to reorient their marketing and sales from a traditional product pitch extolling the benefits of Terrafix. Instead, they focused on two behavior-oriented campaigns: one to convince more primary care physicians to order the objective test and the other to persuade patients to ask for it. This new choice – to focus on changing a couple of critical behaviors – led Sam’s team to rethink nearly everything.

First, they resegmented their patient and physician populations so that they could more precisely identify and target those who would be most likely to ask for or order the test. Then they began a deep exploration of what factors might motivate – or deter – patients in the target segments from asking for a test. This led them further away from their traditional product benefit focus. Instead, these factors ranged widely from the (limited) physical availability of the test to the importance these patients placed on their own sense of well-being. They had little to do with the product itself.

With clarity about whom to target, and what shaped their decision to order or ask for a test, Sam’s team redesigned and reallocated its marketing and sales in a radically different way. Marketing and sales resources had previously been spread across a host of promotional activities to tout the brand, primarily to physicians. Going forward, the team aggressively funded an unbranded communications campaign encouraging patients to ask for the test, positioning it as a natural, appropriate extension of the kind of “taking care of my health is taking care of myself” behavior on which the exploratory research had shown these patients prided themselves. The team also invested heavily in similarly unbranded efforts to make the necessary diagnostic testing more widely available and economically feasible, and to remind physicians to use it.

We’ll return to the Terrafix example in more detail in the next chapter. For now, the important thing to note is how different the team’s new approach was from the conventional strategy – and how different the results were. The new campaign led to a 60 percent increase in the number of objective diagnostic tests performed. As predicted by the team’s analysis, this growth in tests translated directly into a higher rate of Terrafix prescriptions and increased sales. In the first year of the campaign, total annual revenues rose by 9 percent, while the marketing spend for this more focused campaign actually decreased by $15 million. In the three years after the relaunch, Terrafix’s sales grew by nearly 50 percent to $1.31 billion.

Sam’s story, while remarkable, is far from unique. Time after time, we’ve seen this holistic perspective on customers’ purchasing behaviors bear fruit by revealing unexplored opportunities for influencing specific behaviors to unlock growth. In this book, we share four detailed stories and dozens of shorter examples of companies that have sparked growth by identifying and activating key customer behaviors. While these examples span a range of product types and industries, they all share certain similarities – namely, a commitment by product teams to make concrete, fact-based choices intended to increase the frequency of high-yield customer behaviors. These choices provide a consistent line of sight for the marketing, sales, and product teams that enables them to align activities in pursuit of common goals.

SENIOR MANAGEMENT’S MOST PRESSING PROBLEM: REVENUE GROWTH

The challenge Sam faced was one that we’ve observed again and again: being responsible for revitalizing a good product with an unsatisfactory growth rate. Consistent, profitable revenue growth is the primary goal of senior executives and is generally considered the gold standard in evaluating managers’ performance.² The reason is simple: reliable revenue growth is the largest single factor influencing a company’s stock price and business success. General managers or product managers who consistently achieve profitable double-digit growth are rewarded with significant pay increases and promotions. Legendary CEOs such as Jack Welch (GE), Lou Gerstner (IBM), and James Burke (Johnson & Johnson) significantly outperformed the growth rates of their industry peers. More recently, CEOs like Ratan Tata (Tata Group), Eric Schmidt (Alphabet), and Larry Ellison (Oracle) have built their careers on their ability to generate growth even in difficult economic circumstances.³

CEO of the Year and Organic Growth

Many of the most widely admired CEOs have garnered recognition for their ability to drive steady, profitable organic growth year after year.⁴ For example:

• Harvard Business Review ranked Lars Rebien Sørensen of Novo Nordisk as the top CEO for 2015. When asked about the firm’s strategy, Sørensen noted, “Outsiders sometimes come in and say, ‘You’re dependent on diabetes for 80 percent of your revenue – you should diversify.’ But I’ve always believed that you should do things that you know something about, that you’re good at. We’ve tried a lot of diversification strategies in the past, but we’ve failed because of the inherent scientific and commercial uncertainty and our own naïveté. So our expansion has been completely organic.⁵”
• Fortune magazine ranked Nike CEO Mark Parker their businessperson of the year in 2015. He doubled revenue growth since 2006 and the company took a commanding 62 percent share of the market with 8.5 percent steady annual growth. Nike also reported a profit of $3 billion during 2015 – nearly 11 percent of sales.⁶

Our focus in this book is on helping you grow your company more rapidly and reliably – without resorting to acquisitions. Buying another company is, of course, a quick way to grow revenues. And it’s often a valuable way of acquiring skills, assets, and access needed for further growth. Growth through acquisition is certainly easier and quicker than growing by outcompeting rivals. Nonetheless, profitable, steady organic growth – be it by taking market share from competitors or by convincing existing customers to consume more of the product – is the acid test for companies and managers. No matter how skilled you are at dealing with the myriad functional challenges of running an organization, if you can’t find a way to increase sales from existing or newly developed products, your company will, sooner or later, cease to exist. It will be acquired, dismantled, or shut down. It’s that simple.

A cursory look at the business news on any given day reinforces the importance of sustained, profitable, revenue growth. Many of the top stories revolve around firms that failed to achieve revenue targets and the consequences of these shortfalls. The result is typically a drop in stock price and a questioning of the firm’s strategy (see The Organic Growth Challenge).

The Organic Growth Challenge

The three short illustrations below appeared as we were writing and are typical of these missed growth expectations:

• Netflix experienced slower subscriber growth in the United States as its core market of affluent young to middle age subscribers appeared to reach a saturation point. As subscriber growth slowed to 0.3 percent versus the previous quarter, the stock price dropped by 14 percent.⁷
• McDonald’s missed stock market analyst projections regarding revenue growth, stoking fears that the fast food industry was headed into decline. The stock fell 3.8 percent.⁸
• IBM continued to pursue a strategic transformation. It reported 16 straight quarters of year-over-year revenue declines – with more to come, according to analysts. Other tech giants such as HP and EMC also struggled to accelerate growth, prompting concerns about the future prospects of these industry leaders.⁹

The pervasiveness of the growth challenge is due to the fact that virtually all managers – not just CEOs – face difficult competitive conditions with an inadequate tool kit for growth. Nearly all markets today are characterized by multiple competitors with similar capabilities, talent, and products. Moreover, in all these markets, customers almost always know the product offerings. They’ve heard many messages about the products and are familiar with the performance of a good number of them.

So, most managers in most markets find themselves trying to grow a good (but not great) product. Their product is largely viewed by customers and potential customers as similar to all the others. They know their product has some strong selling points, perhaps an aspect of functionality or perhaps an element of service, in which they’re clearly better than competitors. They also know – though they’re often reluctant to admit it – that their product has some weak points relative to their competitors’ products. Most of all, they know that they’re competing in a roughly equal sports league. Everyone is playing the same game, with largely the same talent, product, and offering. It’s not easy to carve out a path to sustained growth and success in that kind of competitive environment.

What compounds the intrinsic competitive challenge is that most managers use the same approach to finding a way to grow. This approach has been taught in every business school and reinforced on the job everywhere in the world for decades. It’s a four-step process: segment, prioritize and target, position, and promote. The idea is for product managers to segment the market into identifiable groups of customers with distinct product needs, select several of those segments to target, identify a value proposition to position the product in a distinct and compelling way to customers in the selected target segments, and then promote – communicate about the product and make it available – as aggressively as possible to those customer segments. This classic approach is based on the idea that if a company positions its products well, growth will follow.

Except, it doesn’t.

The facts are startling. It’s common knowledge that a very high percentage of all new product launches (into competed categories) fail – either outright or by failing to achieve a meaningful bump in sales. A recent Harvard Business Review article noted that 75 percent of new product launches in consumer packaged goods and retail fail to earn $7.5 million in their first year. And only 3 percent hit the target of $50 million, which is considered the gold standard for a new product launch.¹⁰ The numbers in business-to-business (B2B) industries are equally poor. And it’s well known that most of the money spent on marketing and sales efforts to boost growth of existing products earns a poor return, or very often no return at all.

Some of this poor performance could be due to poor work on the part of managers and their teams. In fact, poor execution is the reason given in most companies for failure to achieve growth. But most teams actually do good work, often very good work. We know, because we’ve watched dozens of them and worked with dozens more. We came to realize that the real root cause of the failure to grow was that these teams were using an ineffective process for identifying how to grow in competitive markets.

It’s time for a new approach – a new playbook that is purposely designed to deliver ...