Leading in a World of Permanent Vulnerability

Using Scenarios and Resonant Marketing To Recognize Patterns and Create Better Strategies

In a world of “permanent vulnerability,” leaders need to recognize patterns to make effective strategic decisions, says Wharton Professor Eric Clemons. “As you make the transition to more and more senior management, the ‘vision thing’ becomes more important,” Clemons told more than 60 alumni and students during the kickoff of the EMTM Emerging Technologies Seminar in August. “The role of senior leadership is to make decisions. Anything else can be bought.”

In a wide-ranging presentation that touched on everything from politics to PowerBars to microbrewed beer, Clemons discussed the role of pattern recognition in developing strategy and recognizing market opportunities. Pattern recognition, he says, allows a quick response, leading to effective “rapid response” to opportunities and threats — instead of “rapid regret.”

Recognizing patterns is particularly challenging, and important, in a competitive landscape that is in a state of constant volatility. Emerging technologies, shifting global dependencies, changing consumer behavior, and other shifts are adding to complexity and uncertainty.

Strategy Under Uncertainty: Are You Playing 21 or Texas Hold’em?
Many organizations focus on superior strategic execution, but they need to be sure they are executing the right strategy. This requires vision. When Confederate leader George Pickett made his famous charge at Gettysburg during the Civil War, losing half his men and the battle, the strategy may have been well executed, but was wrong. “Operations without vision, execution without strategy, is lethal,” Clemons says. “Superlative vision is seeing through the clutter, and you have to do it fast.”

Developing this rapid vision requires the ability to recognize patterns and paradigms, he says. Many “surprises” in business were not truly unknowable. The evidence was there but managers just didn’t recognize the patterns until it was too late. “It is not about placing blame after the fact,” Clemons says. “It’s about winning.”

Recognizing patterns helps to differentiate between risk and uncertainty. With risk, you know the odds and can place a reasonable bet or hedge risks. With uncertainty, however, you can’t know the odds. “You don’t even know what game you are playing,” he says. “If you have two Jacks, it helps to know if you are playing 21 or Texas Hold’em — and the dealer wants your bet now. Pattern recognition tells you what game you’re playing, so you can convert uncertainty to knowable risk, allowing modeling and mitigation.”

Scenario planning can help recognize these patterns. Scenarios identify key drivers and strategic uncertainties. “Scenarios do not predict the future; they help in determining a set of possible futures,” he says. “Strategy is dependent upon objectives, and objectives are dependent upon the world as it will be.” Clemons has developed scenarios for corporations and the Pentagon to anticipate uncertainty and convert it into manageable risk. In his work with The Philadelphia Group, Clemons and his team developed 25-year scenarios and analyses for “the future of everything.” He has worked on scenarios for the Middle East, and is working on scenarios for Russia, China, Iran and Turkey.

Resonance Marketing: Recognizing Consumer Patterns
After exploring the big picture of scenarios, Clemons considered emerging patterns in consumer markets. As examples of such patterns, Clemons examined the rise of “resonance marketing” and social networks.

Resonance with consumers is increasingly important in marketing. Consumers know exactly what they want. They are passionate about micro-brewed beers with names such as “Nevada Pale Ale” or the most advanced Nike sneakers. Consumers have access to more information online and this “informedness” means they can immediately find out what’s available, at what pricing levels, and detailed product attributes — as can producers. Clemons notes that consumers can even become passionate about such ordinary products as salt or dental floss, as demonstrated by the excitement over WL Gore’s Glide dental floss using its GorTex™ material. In this environment, companies need find out exactly what consumers want, give them accurate information about the product or service, and charge prices they are willing to pay.

With resonance marketing, strategy isn’t about making a better product, it’s about hyperdifferentiation — making the product better for each customer. The goal is to “understand the unmet wants and needs, cravings and longings of the marketplace,” Clemons says. Given the realities of resonance marketing, retailers may need to rethink their strategies. A supermarket that offers coupons to spur the purchases of everyday cheddar cheeses might instead focus on converting customers into repeat buyers of Roquefort or other specialty cheeses, which sell at higher prices.

Clemons noted that consumers who are passionate about specific microbrew beers will drive hundreds of miles and pay hundreds of dollars for a case of their favorite brew. Some customers will hate specific beers, but others will love them. Clemons notes that the Victory Brewing brand Hop Devil, which is most hated in online surveys, accounts for 47 percent of company sales. “Don’t focus on getting most guys to like you; focus on getting some guys to love you,” he says. While Michelob and Budweiser are fighting for market share with low prices, microbrews now account for a fifth of the market — and growing.

There are hundreds of different Power Bars — for men or women, for golfers or weight lifters. These products are differentiated by features such as ingredients (whey protein) or utility (products that can wrap around a bicycle handlebar) for specific consumers. “There is no single best power bar, just as there is no single best hotel or airline or bank or broker,” Clemons says. “It is what is best for each customer.”

To engage in resonance marketing, companies use line extensions and “sweet spot” marketing. Line extensions create more finely targeted offerings such as Apple Cinnamon Honey Walnut Cheerios. Companies also use “sweet spot marketing,” finding such premium brands as Ben and Jerry’s ice cream or Arizona Ice Tea that continue to sell well even as traditional category sales flatten.

Clemons notes that the rise of resonance marketing is not the same as the “long tail,” which addresses changes in distribution rather than consumer markets. It is not just about “trading up,” focusing not only luxury, but on a better fit with the personal preferences of the consumer. It also is also not the same as “mass customization,” because these small niche segments are looking to find products that fit their tastes and connect with resonant brands, rather than create them. “If you make the right stuff, they will find it, they will come, and they will pay for it,” Clemons says.

Social Networks: Communities vs. Markets
Another emerging consumer pattern is the rise of social networks. While all primates have had social networks, online networks such as Second Life, Facebook or eHarmony are new. While the technology may be new, these networks are still social networks “with human conventions and human norms of behavior,” Clemons notes. “They are not new media like TV, radio or newspapers, which broadcast to captive audiences. Social networks do not have captives.”

Clemons urged caution in using such outlets to reach consumers. “Social networks are not about marketing, and most attempts to monetize social content have been a disaster,” he says, citing privacy concerns over Facebook’s Beacon program. The value of social network comes not through marketing but through endorsement. But this endorsement results from respecting the community, developing content and this leads to guidance about decision in the physical world, or “meatspace.”

Clemons says the “new 4 Ps” of marketing in this environment are that the sites are: 1) personally relevant, 2) participatory, 3) plausible, and 4) allowing transition to the physical world. A social network related to divorce, First Wives World (www.firstwivesworld.com), for example, focused on creating personally relevant content and entertainment, including articles on post-divorce fitness, finance, dating and legal issues. It invites participatory postings and videos. Its reviews are plausible and this leads to community endorsements of specific products and services.

In closing, Clemons encouraged audience members to spot the emerging patterns in their own markets. ”Learn from the experience of others, learn the patterns, and then learn to anticipate uncertainty,” he says. “Even in the presence of uncertainty, patterns emerge and can be anticipated. Rapid recognition and preparation lead to rapid response — which trumps rapid regret.”

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