Knowledge is power, and to recognize success, a company must not only effectively measure and know where it stands in the market and what its long-term investments and goals are but also which stakeholders are affected internally and externally and what group dynamics are formed between them. Measuring the appropriate metrics, a good pricing strategy and a proper stakeholder analysis will help a company to know, define, and make the right decisions for its short and long-term goals.
A company's stakeholder analysis not only concerns the stakeholders themselves and their various needs, as well various topics such as group dynamics within the company and with external stakeholders, the pricing strategy pursued by a company, various start-up metrics with a focus on the Northstar that every company should have, and much more. These topics are described in the following blog article so that you too can have an idea of what a stakeholder analysis means.
Stakeholders – What does that mean?
Stakeholders are those persons who influence both inside and outside the company. Thus the term stakeholder includes not only employees and customers but also other external factors. The most important external grouping for this is the state, the government, or the laws and guidelines that the company must follow. Stakeholders also include competitors and rivals with whom the company shares the market. The pricing strategy described below is partly based on this.
The next grouping is society itself. This includes not only customers but also the value for which the company is viewed from the outside. In other words, not only how you as a customer see the company but how people perceive it when they don't buy from the company.
The individual groups of stakeholders vary from company to company. There is no clear classification since a state-controlled company that operates internationally naturally has completely different stakeholders than a small company that operates nationally. To summarize this again, here are the internal and external stakeholders that are usually distinguished:
Internal:
Employees
Owner
Manager
External:
Clients
Suppliers
Society
State
Creditors
Competitor
The dynamic within a group
Now that we know which stakeholder groups exist and what a stakeholder is, we can move on to group dynamics. A dynamic is always present in every conceivable group. No matter if it is in a circle of friends, in the family, in the office or your team, as well as with stakeholders. There are countless group dynamics lists according to which the individual members can be assigned to a group. The best known, however, is the Alpha-Beta-Gamma-Omega-G classification.
In this classification, the alpha stands for the leader of the group. He or she is the leader and says where to go. His or her task is to defend and protect the group from the "G". The Gamma's, on the other hand, are those who blindly trust the Alpha and follow him/her wherever they go, mostly because they are afraid of them or fear the exclusion of the group. In other words, they are followers. Omega is the outsider of the group and also the one who speaks out and indicate what is wrong within the group. They are also the ones who criticize the Alpha the most and ensure that justice is done. The Beta's, on the other hand, are more likely to be the group's roadmap and project managers. They are the mediators between Alpha and Omega. Last but not least, the "G's". They are those who are not part of the group, in other words, all outsiders. The group is protected from them by the Alpha. Let’s talk about the Price
Let's start this topic with an example given by FH Joanneum Lector Dieter Rappold: Almost every person in the world knows the movie "Pretty Woman". To spend the week with the charming Edward Lewis a price of 3.000$ is agreed. The lady Vivian would also have agreed to the price of 2.000$ and he, in turn, would have paid 4.000$. The key question of this story:
“Who knows what the right price is?” Price is one of the four main pillars of marketing and is shaped by the position of a company. If a company belongs to the discounters, such as Aldi or Hofer, the price is driven by the low price strategy. In contrast, a company that is known for higher-priced products, such as Apple, is driven by the highest price strategy, “Without a crystal clear and consistent positioning, it is impossible to develop and implement a powerful pricing strategy” mentioned Dieter Rappold in his lecture 2020.
The price factors of a company are driven by:
Target group / Consumers
Costs
Competition
Revenue Target
Market Conditions
Positioning
These factors are therefore crucial in determining the price that can be set high or low. If the target group or the consumers are not willing to pay the price or the competitor demands a lower price or the cost price (i.e. the purchase price, warehousing, personnel, marketing, etc.) is too high, then the higher or lower price set will not be sustainable.
To reach the bottom line, i.e. the minimum price, there is a simple method: Profit = Price x Quantity – CostWhy this is important for stakeholders? Good question! Here is the simple answer: External Stakeholders are, as already mentioned above, customers, competitors, etc. and these are influencing factors for the price. The internal stakeholders, i.e. the employees, the managers, and the owners themselves, must ensure an appropriate price so that the company is sustainable in the long term. Because the one big goal that every company has is survivability. Only after that comes profit.
Metrics Matter
“If you cannot measure it, you cannot improve it”
– Lord Kelvin
To define your company’s success, you need to define the metrics you will be using. A metric is the meaning of measurement, but you cannot choose any metrics, you need to find the metric that helps your company.
There are three different main types of Metrics:
Quality
Quantity
Efficiency
The best metrics for start-ups are:
Product Market Fit (PMF)
Customer Acquisition Cost (CAC)
Retention
Churn
Lifetime Value (LTV)
Product Metabolism
Viral Coefficient
The key question is: When to achieve which metrics? To answer this question, it is crucial to differentiate between the different metrics, like input and output metrics. Output metrics reflect the results, and input metrics indicate actions. Above all, before you start you should base your decision on your data.
“A data-based decision-making culture is the single most important competitive edge of start-ups against incumbents. But most startups are in love with their product and rather work on a “Product founder fit “ than a “Product-market fit"." – Dieter Rappold, Founder, and CEO of Speedinvest Pirates
Product Market Fit (PMF) & Sustainable Growth
The Product/market fit is the degree to which a product satisfies strong market demand. To this, the Product/market fit is the first step for a company to gather feedback from the market and engage interest in a specific product from their customers. The Product-Market Fit – or shortly PMF - can be considered as one of the main metrics of start-up successful work.
FMP metric helps us in:
Knowing fundamentals such as a profitable business model and achieving product-market fit has been neglected
Profitability (and not growth at all cost)
Show how revenue ultimately surpasses costs (rather than making money straight away)
The cons of the MFP metric are manageable but still relevant:
It is unclear what to track, when, and how
Lack of focus on product-market fit
Find your personal North Star Metric (NSM) A North Star Metric helps measure the success of a product in the company and is also essential to reach the maximum business growth potential. Using the NSM Metric means finding the one metric that matters and your one metric that best captures the core value of the product and it also reflects your PMF. A North Star Metric is essential if a company wants to reach its maximum growth potential. To grow in long term, a company will need to develop a long-term growth strategy and for that, the ‘North Star Metric’ should be at the center of the growth strategy.
When defining your NSM the company needs to be aware that “Revenue” is a bad decision for that, because NSM is a way to sustain your project. Revenue is what the customer pays in return for the product, whereas a north star metric is a value the product brings to people. Also having revenue as an NSM is misleading because it means the company doesn’t have a clear long-term strategy.
The key reason, why a Company should have a North Star Metric or in other words the pros:
Orientation: the NSM gives more orientation to the company itself, the core business, and the products which are sold
Core Value: NSM captures the core value of the business and the company.
Focus: The company provides a clear focus, and everyone has the same goal.
Clarity: It is clear to everyone how and what the company is doing on a short- and long-term basis
Customer focus: the first concern is bringing value to the customer
Growth: efficient long-term growth as the company is more focused on value
Did you hear about the AARRR funnel? It’s all about Acquisition, Activation, Retention, Referral, and Revenue
As you can read in the headline, the AARRR funnel deals with Acquisition, Activation, Retention, Referral, and Revenue. It optimizes the business journey and set up some valuable and actionable metric goals for a company and especially for start-ups. For long-term growth, a start-up needs to have an attribution model, a bidding model, to know where the customers are coming from, and which measures to take. The Attribution model means to know better which of your spending is doing great and which not. The retention metrics show a company where new growth is possible. In saturated markets, it is hard to get new customers and to increase sales. For that, it is important to know, where market growth is possible and where new customers can be fetched.
Why a company should use AARRR?
Not only for start-ups the AARRR is important. Also, long-existing companies should have a look at the five most important metrics, because those metrics effectively measure the company’s growth and are at the same time simple and actionable.
The first A stands for the Acquisition metrics and shows where the customers coming from and where there is enough space for the company to grow. The CAC – Customer Acquisition Cost – shows the costs of convincing a potential customer to buy a product. This can be organic or paid. To explain this, an example follows: When you go into a shop in town and buy something, this purchase is an organic acquisition for the shop. However, if you have been targeted by a flyer or other advertising, then it is a paid acquisition.
The next A stands for Activation and means the client's personal first experience with the product. In other words, exactly how you feel about a product and the company behind it when you have consumed or used the product.
Let’s move on to the R which stands for Retention: It indicates the quality of growth. And that means how many customers who have bought from the company once come back and how often. A differentiation is made here between:
DAU = Daily Active Users
WAU = weekly active users
MAU = monthly active users
Especially in digital sales, these figures are particularly important, through various marketing campaigns, of course, they also try to push the numbers up and boost more sales. This is exactly why you as a customer always receive advertising and newsletters from various companies. The second R stands for Referral Metrics and expresses the willingness of customers to recommend a product to their peers in figures. In exactly these metrics, you are counted as a loyal customer, If you always buy from the same company, the same brand, and/or the same product, then you are one of the most important assets for a company. You are, in other words, the brand lover and super follower. And last but not least the Revenue Metrics. It shows how to increase revenue and how the company can push up sales figures and profits respectively. In this section the Customer Lifetime Value is essential. The CLTV shows the net profit from one customer over his / her lifetime. If you are one of the brand lovers or super followers of a company, then you will be treated accordingly and can enjoy some goodies. However, if you're more like a casual shopper, then you're not going to get the benefits. For this reason, loyal customers are always more important to companies than new customers. Finding new customers is easier than finding loyal ones - similar to friendships! In the End: The Group, the price, and the metrics matter Knowledge is power, and to recognize success, a company must not only effectively measure and know where it stands in the market and what its long-term investments and goals are but also which stakeholders are affected internally and externally and what group dynamics are formed between them. Measuring the appropriate metrics, a good pricing strategy and a proper stakeholder analysis will help a company to know, define, and make the right decisions for its short and long-term goals.
Bibliographies:
Course "Stakeholder Analysis and Digital Business" taught by Dieter Rappold in the first Semester of the Master's degree course "Content Strategy" October and November 2020
Product/market fit. (2020). In Wikipedia
9 Metrics to Help You Make Wise Decisions about Your Start-Up. (2011, October 19). Neil Patel.
What is your “North Star Metric”? + 8 steps to find your NSM immediately. (2019, November 4). Ward van Gasteren.
Balke, M. (2019, May 6). AARRR Framework- Metrics That Let Your StartUp Sound Like A Pirate Ship. Medium.