In The Alpha Factor, I talk a lot about the fallacy of viewing the biggest as being the dominant, influenctial leader of a product or service category.  I use Ben & Jerry’s ice cream as one of the prime, highly-visible examples of the fact that smaller brands often are the real “Alpha’s” in a category, driving expectations and gaining a disproportionate share of the profits available in the category.

It’s not hard to look at the business press to see examples of this.  What’s harder to understand is how a small marketer can gain that kind of influence over much larger competitors.

Most of the answer to this is in attitude.  The smaller company that believes it is being overshadowed by a larger competitor creates a self-fulfilling prophesy.  Through its lack of self-confidence, it automatically looks for opportunities to maintain its “following” behavior.  It quickly falls into either a “me, too” product development mode or it combines that with a heavy dependence upon price promotion.  It doesn’t take long for everyone in the category (retailers, distributors, competitors, customers, the company’s own sales staff, and internal staff) to become convinced that the product or brand is just a follower with little hope of becoming much more.  It is discounted in everyone’s mind even before the company discounts the product on retail shelves.

Step #1 to changing that is to catch a vision for what is possible.  The research model I use with companies quickly defines a range of possible new visions for the category, based upon the unstated, unmet needs of customers already buying products in that category.  This research sees what people wish they could buy, how they wish they could buy it, and personal needs they wish were being met based upon the decision pyramid described in detail in The Alpha Factor.  Many of those needs are unstated, because people are either embarassed to admit the core emotional and personal needs they wish could be met or because they don’t believe this category could offer an answer to any of those things.

The result I have discovered of finding and then addressing these unstated, unmet needs is amazing.  Brands double or triple their share in short periods of time usually without discounting or even new product development.  Customers become more loyal.  And they even begin to “evangelize” about the product to others.  As long as the company recognizes the source of this new growth and customer loyalty, they can maintain this momentum for long periods.  The moment they lose sight of what actually caused the change, they begin to consciously or unconsciously undermine the things that created that growth and the product or brand begins to slide again.

Is it possible to catch the vision for what is possible without using my research model?  Certainly.  You just have to create a way of getting past the obvious answers that customers invariably give researchers and salespeople to discover what’s behind the decisions being made and what more they would really like to be offered.  Using the decision pyramid helps a lot.  It keeps you focused upon the emotional, personal factors that really matter. 

Just remember that customers are the only ones with the answers you need.  Your salespeople don’t know; they are being lied to by their customers who want them to believe price is everything.  Your retailers and distributors don’t know, because they want to believe that price is everything.  Your competitors don’t know, or they would already be addressing them.  Only customers know.  It’s just that they don’t always know that they know or believe that, if they reveal those answers, anyone would be able to answer them.

Short-term management has been the bane of the past decade, creating more harm to the future of American business than any short-term benefits that were generated.  Short-term management is defined by a focus upon driving continuing short-term profit results often without regard to the threat such decisions represent to the long-term growth potential of the company.   As discussed in The Alpha Factor, even short-term profit can be generated without undermining the long-term growth of a company, IF the tactics used to drive that reported profit had strategic value and were not going to weaken the company’s overall ability to generate strong future growth.

Unfortunately, the most debilitating version of short-term, cost-side management has been driven by the extraordinary demands of the stock market.  GE’s predicament and Jeffery Immelt’s bruises over not meeting a short-term predicted profit goal demonstrate just how dangerous the emotional, “I-don’t-care-how-they-do-it-as-long-as-they-do-it” mentality of stock analysts has become.  Here is a company that is strong, vibrant, and probably better poised than most to create a strong future, yet it was spanked by both the former CEO and the stock market because of a simple, unpredicted change.

Could it and should it have been predicted?  Possibly.  But the bigger point is the punishment administered for failure.  How can any CEO of a publicly-held company be expected to make strategic decisions in the face of such potential punishment for things that may be beyond control and have little or no long-term effect on the strength of the company?

Combine this with the excessive incomes being showered upon CEOs even of losing companies for hitting target stock price goals, which typically only provide profit to stock holders who have little or no long-term interest in the company, and you have a formula for disaster.

The entire “gambling” aspect of the stock market has become one of the most potent enemies of long-term success for American business.  My hope is and has been that the model for generating both long-term and short-term sustainable profit growth presented in The Alpha Factor will help provide a more rational and more valuable way of analyzing corporate stock value.

I pray for the day that may occur.

The answer is that functionality can only knock out an Alpha, when the Alpha loses sight of the emotional and ego-satisfaction factors that made it the Alpha.  Then it becomes a battle of functional comparisons.

Here is a good current example:

Microsoft looks like it may be in a battle for its life against Apple.  The battleground seems to be based upon Apple’s fabulous TV campaign to contrast the ease of use of Mac’s vs. PC’s.  With the introduction of Apple’s new Leopard operating system, there seems to be more momentum moving toward MAC’s than ever before.

So what happened?  Yes, Microsoft has been the dominant player for many years.  Despite a much better operating system, greater reliability of the software, less frequent hacking intrusions, and much easier learning curve, Macintosh computers have been relegated to a relatively small set of customers, especially focusing upon the arts. 

The problem for Microsoft has been that it is one of the most hated companies on the planet.  People admire Bill Gates for his amazing level of personal success, but they hate Microsoft’s customer service.  They hate their operating software that degrades over time until it makes even operating your PC all but impossible.  They hate the fact that PC’s continually crash – so much so that Microsoft finally added a function to advise their technical teams of every software failure so they could continually attempt to improve functionality.  They hate the fact that they have to spend a small fortune every year to protect their Microsoft-based PCs against security risks.  They hate the fact that Microsoft introduces new software with bugs, and then spends the next few years providing patches to fix those problems.  They hate Microsoft’s corporate arrogance.

In short, customers hate Microsoft, because Microsoft has arrogantly ignored almost all of the emotional and ego-satisfaction factors that create long-term loyalty.  They have relied upon their strangle-hold on access to computing and the high cost of converting to a competing operating system.  The problem for Microsoft is and has been that they figured that they controlled the availability of the benefits of owning a computer, so they could ignore what their customers really want to buy. 

The turning point, however, has been the forced introduction of Vista, a new operating system that has created more problems than it solved.  There is even a petition out to beg Microsoft to maintain Windows XP, because, although XP was far from perfect, it was much better than Vista.  

Watch as things unfold.  Microsoft could most certainly overcome this problem by responding wisely, even though more and more PC owners are starting to realize that they have been living far below their potential for joyful computing.  For most people, the investment of changing from one system to another is far greater than just the investment in hardware and software.  It will require an entire change in the way they do things.  But Apple has even addressed that by having worked hard to create a reliable interface between MAC’s and PC’s so data can be transferred somewhat easily.

So, what will be the outcome?  Since Microsoft’s hold has been purely functional for many years, I continually look to Apple to be the eventual winner.  Even if they don’t end up as the largest seller of operating systems and hardware, I count on them to become the first true Alpha in the personal computing arena.

American business is killing itself.  Every day we read about more once-great businesses that are now in dire straits, laying off people and fighting to maintain any semblance of their former glory.  The future of American business doesn’t have to be defined by continual chaos and demise.  The Alpha Factor project proved that there is a much brighter future in a very unlikely place:  The revenue side of business.

Every corporate head who demands cost-cutting in order to make the company look good to financial analysts (which is almost every one of them) is strangling the life out of his company.  The problem is that corporate leadership is lost in cost-side management… not because they believe that it can grow their companies, but rather because they don’t believe it is possible to affect the revenue or sales side.  They wait for “magic” to happen on the revenue side and keep costs under control until it does.  

This approach to business management is also wasting a company’s greatest asset: Its people.  Employees are there to create growth, not cost-savings.  That resource is being wasted because top managers don’t understand that they can, in fact, use that resource to create dramatic growth by managing the revenue side.

The Alpha Factor proves that any company can manage the revenue and sales side.  

• Unlike The Tipping Point that points to some vague level of support that suddenly makes an idea popular,…
• Unlike Blue Ocean Strategy that creates imagined observations after the fact that later have proved themselves to be incorrect,…
• Unlike Good to Great that can only point back to “management style” as a key differentiator among successful businesses,…

…The Alpha Factor has created real, measurable sales and profit growth for real American businesses using the model it espouses.  It’s not just theory.  It’s not just observation.  It has actively and purposefully proven through real market tests that any company that really wants growth can create it by understanding the secret to how customers really make decisions and how to manage a innovation to take advantage of that. 

• It proved it by turning “the worst financial product in America” into the fastest growing financial product in America, recommended by top financial writers as a smart investment.
• It proved it by showing Subway Sandwiches and Salads that it could more than double per-store sales and increase franchise sales by 600% by cutting discounting, even though it did not change its product.
• It proved that the worst-tasting food product in its category could go from a low-share brand to top dog without using discounting and without improving the product.
• It proved that the top manufacturer in its category could drive its competitors “crazy” by forcing competitors to discount while it kept its profit margins high.

It proved that any company of any size can create dramatic, sustainable growth without innovating new products or competing by the rules that everyone else believes need to be followed.

No other book offers anything like this.

Is there a single corporate executive or executive hopeful that would not want to know how to create growth without the huge R&D investment of product innovation?  Is there a single financial advisor who would not like to understand how to really evaluate the future potential of a company based upon how likely it is to create long-term sustainable growth?  If there is, then that person should not be in his job.

The Alpha Factor is the first in a series of books that will apply the universally applicable model I discovered of the “pyramid of drivers of buying decision” to real business problems.  To follow shortly will be The Alpha Factor Field Guide – a team-based self-assessment of how well your company uses Alpha learning and what you can do about it.  Following that will be Alpha Innovation – the secret to creating breakthrough, disruptive innovation.  Following that will be Alpha Management – how to make your people your greatest sales team.

I believe there is nothing more critical to the future of American business than to help top managers and future ones, as well, understand that they don’t have to wait for “magic” to occur.  They can take control of their company’s future.  They can take control of the buying decisions within their category.  And they can create a stronger future for every other business in their category, as well.

This is the classic example of “harvesting” - taking value that was created over decades of wise strategic investment and quickly turning that value into cash to show what looks like short-term profit, while actually just converting balance sheet value into ephemeral value that disappears once it is stated. 

Harvesting is like burning wood.  Wood has great strategic value.  It can be used to provide immediate needs satisfaction, but it can also provide the opportunity to create even greater value.  It can even be used multiple times to provide even greater needs satisfaction and opportunity for creating greater value and wealth. 

Wood can be used to build an office or factory that provides an opportunity to create jobs for people and profit that can help drive the economy.  Wood can be used to build furniture that provides comfort, but can also provide a place to do other useful activities.  Wood can also be re-used and recycled into other useful objects.  At least until you burn it.

Once you burn wood, you get a brief flash of heat and light, and then it is gone.  It has changed into something that has minimal value.  That’s what Mr. Lampert is doing to Sears.  He is creating a flask of heat and light that is gone almost a quickly as it appeared.  Yet he has been held up as a financial ”genius.”

Please, save us from such financial geniuses, and let us find business leaders who want to create self-sustaining wealth, not just to harvest smoke from the embers of the efforts of real geniuses. 

Sears could have been brought back from disaster, if anyone had bothered to try to understand what made it once the largest and most influential retailer in the world.  It could have quit its blind rush to be like everyone else and go back instead to being a completely unique form of retailer that created products and had top manufacturers make them for them.  Even after it had prostitued itself to become “Brand Central,” it could have stepped back and recaptured its unique position, because none of its competitors ever “got it.”  They still don’t.  No one else ever tried to do it the way Sears did, and that’s why none of them could touch Sears while it remained true to its uniqueness.

Save us from the geniuses who can only destroy to create value for themselves and a few others.  Give us some real leaders who want to create something bold and great that will create ever increasing value long after those geniuses are gone.

This has nothing to do with political preference or ideology.  It has everything to do with what the candidates are saying and how they are being perceived by the public based upon the Alpha Model.

For anyone who has not yet read The Alpha Factor, it is based upon more than a decade of intense research plus more years of real-world testing (not just ”test markets”) to understand what customers really want and why marketers who use these principles generate greater, more profitable success, while other companies struggle even though they are doing things that seem to emulate those successful companies. 

The secret is fairly simple in principle, but extremely difficult in application - not because it’s all that hard, but rather because the “normal” model for trying to influence people is so wrong and so counter-productive.

By using the needs satisfaction pyramid (also called the Hierarchy of Purchase Drivers on page 63 of the book), it is fairly easy to see the difference between these candidates and predict how they would fair in a general election today.  The issue that was discovered in our research that undermines success is that, when trying to influence decisions, most companies and people focus upon “function,” meaning they try to show that they are better by describing how what they have ”works.”  That approach can work, but it costs more and takes more time to convince people with no guarantee of success.  However, if you focus upon fulfilling a person’s need for personal significance and self-satisfaction (the two ways we perceive ourselves), you can generate passionate loyalty faster with less investment and with far greater impact.

Now, look at the candidates.  Who has taken this learning to heart? 

Let’s start with John McCain.  During his campaign so far, he has cast little or no positive, motivating vision that would make anyone feel good about following his lead.  He has focused far more on what he would do (”function”) than on how good we would feel about ourselves and how satisfied we would be with the world toward which he would lead us.  After “Super Tuesday,” it became clear that he would become the party nominee due to his apparent strength with independents and “moderates” and due to the sapping of strength from Mitt Romney by Mr. Huckabee.  After winning, Senator McCain’s response to the more than 50% of the Republican party that has serious concerns about his political views was to say publicly, “Get over it, and get used to it.”   

Contrast that with Barack Obama.  Whether you agree with his politics or not, whether you believe he can deliver on his promises or not, he has continually cast a vision that makes people feel the world might be a better place with him at the lead.  You can argue with the “functionality” of how he says he would get us there, but people obviously want to believe in his vision, because he (as Ronald Reagan did a quarter of a decade ago) makes people feel good about the future of being an American.  He addresses both self-satisfaction and personal significance in his vision-casting.  That’s probably why he is beginning to be called the “new JFK.”

Finally, let’s look at Hillary Clinton.  She has used the “mean” stick to try to beat opponents into submission.  She has used the crying shtick to make opponents look like mean-hearted bullies.  She has created division and distrust, trying to set one group of people against another.  But even as she has tried to cast vision, she has never been able to make people ”feel good” about themselves or about being part of something in anything but a divisive way. 

On the Alpha scale, Barack Obama would clearly have the highest Alpha Factor.  As of today, Hillary would probably be a distant second.  Poor Senator McCain would be just below that.  Therefore, based upon Alpha learning about what creates success, Obama would be the big winner among the largest portion of the population if he were to run against John McCain today.  If the race were between Senators Clinton and McCain, the model would predict a slight margin of victory (at least in popular vote) for Mrs. Clinton.

Whether it is incentives for sales reps, bonuses for managers, or simply metrics for tracking and improving corporate performance, the Alpha Factor model and the insights gained from using the Alpha tools gives you clear direction on what areas of innovation will create the greatest growth, what performance will drive the greatest loyalty, and what assets you currently have need to be protected in order to maintain and increase your influence in the marketplace.

Alpha Assets

One of the outcomes of Alpha assessment is an understanding of what Alpha assets you have (beyond the obvious tangible ones) that are creating influence for you in the marketplace. Alpha asset assessment also provides you with insights as to areas for innovation that, if addressed, will create even more Alpha Assets that will increase your profitability and your growth potential. Metrics are created that allow you to monitor those assets and to track growth in them that will increase your Alpha Factor.

Innovation

Few companies think of innovation as part of corporate metrics, but it can and should be. Ongoing innovation is critical to sustainable growth, but it takes a clear vision of where to focus innovation and the types of innovation that will create the greatest influence for your product, brand, and company. Through Alpha assessment, you not only learn what areas of innovation will drive the most sustainable growth and influence for your company, but also what measurements will keep you abreast of changes in customer attitudes or needs that will drive future innovation.

Here are some of the BIG SURPRISES we discovered through the Alpha Factor research:

1. You don’t have to be the biggest to dominate decisions in your category — Many smaller companies and brands are actually the decision leaders in major categories. That puts larger, better financed companies who could be driving higher profitability on the defensive every day. They believe that they are up against competitive pressure that they cannot control, so they find themselves in pricing battles that cost them millions of dollars in profit year after year.
2. Price is the last decision criteria applied, not the first — Many marketers wrongly believe that price is the primary decision factor. Those marketers who recognize that price is only the cumulative conclusion of weighing all other decision drivers reap significantly more profit, generate dramatically greater customer loyalty, and increase their stock value.
3. You don’t have to be the first to market with an idea to be the dominant marketer of it — Far too many marketers have fallen for the myth that first to market means first to the top. In fact, “smartest to market” is first to the top. That usually means the one that has the most “influence” among customers, distributors, referral agents, and competitors. Maintaining that position is also a function of continuing to be the most influential in the category, not history of being first there.
4. You don’t have to be the “best” to dominate — Best quality has been the “holy grail” of marketers for more than two decades, while many producers of lower quality products dominate decisions and marketing in their categories. Quality is only one of two dozen possible differentiating factors, but it is not the definitive driving factor for success in most categories.
5. Competition is desirable, because it can be used to support your own marketing ends — Competitors are your best marketing support mechanism…once you’ve learned how to get them to let you lead the pack. The trick is learning how to change drivers of decisions, so you control customer expectations and have everyone looking to you for leadership (even if you’re the smallest in your industry).
6. Perceptions proven through practice drive decisions — Some marketers have wrongly believed that perception is the target. Only focused practice and delivery of what customers deeply want (vs. what they say they want) drives Alpha status. The real trick is in knowing what customers really want — no matter what they are using as drivers of decisions today.
7. You can predict who has the potential to change their market share (and it doesn’t have to do with the factors you probably thought were important) — Changes in market share often occur without dependence upon pricing, new product introductions, expansion of distribution, or other traditionally-considered factors, even though those factors are often “blamed” for such changes. Knowing the real causes of share change and using them to your advantage can create greater growth and greater profitability for your company’s products.
8. Dramatic shifts in market share can occur in short time periods, even in well-established and highly-competitive categories — Changes in market share often occur in such short periods of time that many marketers are seemingly surprised by those changes. (We have taken products from the number five or six position to number one in as little as five months without discounting or new products.) They can, in fact, often be predicted long before any share change starts to occur… not by watching what marketing strategies it is using, but rather by measuring its Alpha Factor, the earliest indicator of significant change (up or down).
9. The customer decision process is extremely complex; but it can be understood, quantified, and influenced without depending upon price as the critical factor — Many marketers struggle with a deep-seated belief that customer decisions are often made for reasons that are unpredictable and uncontrollable (except through price tactics). In reality, the decision process is quite complex, but it is quantifiable and understandable, which means it can be predictably influenced without price as the key driver.
10. Profitability is driven (at least on the revenue side) by how effectively you can influence the customer decision process and the strategic decisions of your competitors — As with the previous point, in learning how to control and lead decisions in your category, your price leverage (and, therefore, your profitability) is dramatically increased.
11. Measuring outcomes often blinds one to the causes that drive them — Most companies measure the wrong things in order to drive growth in revenue and profitablity. Alpha Factor assessment lets you discover the critical causes that drive the outcomes you want to see, so you can measure them. You can only manage and affect causes, not outcomes.
12. Differentiation is an outcome, not a cause — Many marketers wrongly look at differentiation as a “cause” that can and should be managed. It is far more effective for creating Alpha leadership to understand and manage other real causes of differentiation that will drive growth and competitive control.
13. You can create a process for generating perpetual growth — It is not easy, but perpetual growth is possible, if you know how to manage your competitors’ and your customers’ decision-making process. The trick is in understanding what will continually give you leadership in driving customer expectations, which puts you in the controlling position to manage growth in your category.
14. Innovation has to be more than new product development — Innovation is far more critical in areas other than new product development. The trick is in knowing which seemingly minor areas for innovation can drive dramatic new growth for both immediate sales and profit and for long-term enhancement of your Alpha potential.