Renovate Before You Innovate:
An Interview with Sergio Zyman
by Christian Sarkar

Sergio Zyman is the founder and Chairman of Zyman Group, an international management consulting firm based in Atlanta. Zyman Group has worked with such companies as Microsoft, Miller Brewing Company, and McDonalds.

Before starting Zyman Group, Sergio put the fizz back in Cola Cola's fortunes. During his tenure as CMO of the soda company, he boosted sales volume from 9 to 15 billion cases, a growth record for the firm.

Sergio's definition of marketing success is to "sell more stuff, to more people, more often, for more money, more efficiently." His latest book is Renovate Before You Innovate: Why Doing the New Thing Might Not Be the Right Thing. He is the namesake for the Zyman Institute of Brand Science at Emory's Goizueta School of Business - and this very site.

First of all, what's wrong with innovation? Are corporate pied-pipers like Gary Hamel and Tom Peters really leading executives astray by asking them to innovate, innovate, innovate?

Sergio Zyman: There's nothing wrong with innovation. But most companies that think innovation usually end up making one or several mistakes. They get hung up on core competencies instead of their core essence (I'll explain what this means in a minute), or they pursue creativity at all cost, treating all new ideas as potentially equal; or they limit their innovation to new products, forgetting that innovation is about creating new value; or they chase horizontal instead of vertical growth; or, and this is a plague, they try to innovate through acquisitions, instead of organic growth.

This sounds silly, but its really rather simple. You'd be amazed at how many companies confuse what they know how to do, their core competence, with what consumers will buy from them, what I call their core essence. For example, Coke once got into the shrimp farming business- we had core competencies covering purchasing, distribution, sales, logistics, and global operational capabilities. Where it all fell apart was that we never thought about why customers would buy shrimp from us in the first place. Shrimp farming was not a core essence. Consumers simply couldn't make a connection between shrimp and Coke.

So that was an example of barking up the wrong tree. Innovative, perhaps, but a business failure, nonetheless. It's easy to buy or develop new competencies, but it's much harder, if not impossible to develop a new core essence.

So doing the new thing, as you say, might not be the right thing...

Sergio Zyman: Do you remember when Porsche came out with an automatic transmission? That's not their essence. It's, ...

mis-innovation?

Sergio Zyman: I was going to say dumb.

Which reminds me of innovations like Pepsi Blue, or Nestea's yellow tea drink called "Tea Whiz," or Kimberley Clarke and Proctor & Gamble's "wet toilet paper," or Las Vegas' "family friendly" campaign. The list goes on and on. Innovations that fail.

Innovation says "start with what you can make and see if you can sell it." Conversely, "renovation" says "start with what you can sell and see if you can make it."

Innovation is also much more expensive and risky than renovation because it often requires you to build new assets/infrastructures and competencies and to source new customers and consumers. Remember, securing a new customer often costs six times more than retaining a current one.

RenovateYour Brand: Sergio Zyman

I take it you're not exactly a fan of ads for ads sake?

Sergio Zyman: A while back I used to tell everyone who would listen- "The problem in marketing today is that we spend 95% of our time and money on advertising and 5% on the rest of the stuff. What I propose to you today is to flip it around: Spend 5% of your time and money on advertising and 95% on everything else. If you do that, you'll sell a lot more to your customers." That's even more true today.

Again, I want to say this clearly- I'm not against creativity or innovation. But you don't have to abandon everything you know in order to achieve breakthroughs that lead to topline growth. Innovation utilizes existing assets to develop high-risk propositions before you see whether you can develop ways of activating better your existing business.

So that's why you think companies should renovate? What is renovation?

Sergio Zyman: The bottom line is that renovation is a means to drive organic growth. The philosophy of renovation is this: "Let's find out what we can sell and see whether we can make it."

Renovation is grounded in a company's core essence and is a rigorous, research-driven approach to understanding what a company stands for in the minds of consumers and how to best meet consumers' needs and maximize their experience. Instead of selling consumers what a company can make (innovation), Renovation seeks to define what consumers will buy and then provides it for them. Renovation provides context for growth by asking and answering questions such as, "What does the market expect and demand that we do? What does the market give permission for us to do? What will the market forgive? What will the market reject?"

It starts with a company (re)validating its core essence and is followed by a strategic effort to leverage its core competencies and existing assets/infrastructures to renew and reinvigorate the overall business. In my book I spell out the "Six Key Components to Renovate Your Business:"

1. Renovate Your Thinking
You have to think and act like the insurgent rather than the incumbent. You must treat marketing like a science and not an art. You must recognize that marketing is all about selling. Too many companies achieve a little success and then get fat and lazy. Think like an aggressor and a renovator in all aspects of your business.
Failure to think like an aggressor and a renovator helps explain why:

• Cell phones weren't introduced by AT&T
• Online mapping wasn't introduced by Rand McNally
• Overnight package delivery wasn't introduced by the U.S. Postal Service
• Diet and caffeine-free soft drinks weren't introduced by Coke
  

2. Renovate Your Business Destination
This requires defining your current state and identifying your desired end state. From here, you can create an effective plan to bridge the gap between the two.

3. Renovate Your Competitive Frame
You must understand the entire set of viable alternatives to your product that compete for your customers' time and money. Look outside of your traditional competitors and even your current category as your customers define it. Your company could be in big trouble if you only consider your obvious competitors. The big three U.S. automakers were blindsided by Japanese import cars; steel mills by mini-mills. In Russia, Coke's main competitor was not another beverage, but the bus system. Redefine your competitive space to create preference for your brand and a reason to spend money on your offering.

4. Renovate Your Segmentation
In order to allocate resources to the higher-profit opportunities, you need to understand the values, attitudes and behaviors that shape demand as well as the attributes and benefits that drive preference among your customers and consumers.

5. Renovate Your Brand Positioning
It's the overall image of your brand that you create in your constituents' minds; and every program, initiative and activity you undertake must be consistent with and measured against the positioning. If you don't take control of the dialogue between you and your customers, your competition will, and they'll position you as irrelevant. Communicate with your customers to position your company right where you want to be. The Concorde is a classic example of terrible positioning. Instead of positioning itself as an elite form of air travel for the rich and famous (and getting labeled as an extravagant corporate expenditure), it should have been positioned as an economical and efficient way to do business in Paris and London.

6. Renovate Your Customers' Brand Experience
Competing on the basis of experience vs. product attributes alone expands your competitive frame and gives you more opportunities to deliver value and differentiate yourself. Create a meaningful customer experience before, during, and after purchase in order to influence repurchase. Think of Ritz Carlton and its constant attention to guests' preferences, which resulted in a premiere service called luggageless travel (frequent guests leave personal items and clothing at the hotel between visits).

Let's talk about "Renovate Your Thinking." Can you explain that component for our readers?

Sergio Zyman: One, thinking renovation means thinking like a challenger rather than the champion. Train yourself to see opportunities (within your core essence, of course) and act on them early. Two, measure the result of every dollar you spend on marketing. Three, don't even think about lowering prices. There are tons of ways to generate organic growth- cutting your prices isn't one of them.

How about "Renovate Your Business Destination"?

Sergio Zyman: A destination statement articulates where you want to nd up as a business. But you don't just throw this together during your lunch break. It's serious work. The best destination statements answer several questions. For example:

1. How do we define our business? What business do we want to be in on a long-term basis?
2. Who are our target customers? Who should we sell to, directlyor indirectly, now or in the future?
3. What do we want them to think? What explicit, tangible attributes and benefits will customers ascribe to our brand?
4. What do we want them to feel?
5. How do we want them to act?
6. What do we want as a result?

In my book I give detailed examples of how companies are doing this. Again, I can't stress this enough, your destination must be consistent with your core essence.

So can you give us an example of how not to renovate?

Sergio Zyman: Let's take a look at Diner's Club. Here's a company that literally invented the credit card and created a whole new industry, but failed miserably on all six components of renovation.

To begin, it failed to develop a renovation mentality, holding firm to being "the highest quality travel and entertainment card" when people were using their cards to charge a lot more than travel and fun. That's the wrong business destination.

Then they raised their annual membership fee from $80 to $95 when most other cards were free or a lot cheaper.

Diner's Club also competed in the wrong space. They assumed they were competing with American Express, only to find that AmEx, Visa and Mastercard are fighting each other for turf, and all three left Diners Club behind. Diner's Club failed on the three A's - availability, acceptability, and affordability.

When their expensive Diner's Club cards aren't accepted at very many place, and when the Diner's Club no longer carries any prestige, customers forget about the fun chat they had with the customer service person, and cut up their card instead.

What's the one idea you want people to take away?

Sergio Zyman: Simple -- the purpose of marketing is to drive sales, and every dollar you spend on marketing should generate measurable results. Period.

Christian Sarkar is the managing editor of the ZIBS.com site. He is the founder and CEO of Double Loop Marketing LLC, an online company specializing in demand generation and thought-leadership -based campaigns