Category Archives: Market Strategy

Diagnosing Stalled Sales

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Just Ignoring or Pushing Through the Pain is Not the Answer 

As an entrepreneurial CEO or owner of a small or start-up company, you probably don’t have the economic safety net to tolerate long term losses or less than adequate speed and growth in the adoption of your new products.  You also may not feel you have the time or cash to stop everything, pull the team together, and completely re-visit your base assumptions and offering design. This is where panic sets in. What do you do?

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Typically, if you ask your marketing, sales and engineering team what should be done, they will come to you with a laundry list of quick fixes: requests for price reductions, funding approval for new marketing initiatives or even more complex and higher performance product features which, they claim, are certain to turn around the problem. As CEO how do you know what to bet on? How do you know if you’re throwing good investment dollars after bad? How do you avoid having to seek out more funding and perhaps dilute ownership?

A number of years ago, I was asked to assess the viability of a new product that was struggling to gain traction in the marketplace. The CEO of this high-tech, pre-IPO firm wanted to know whether the product line could be saved. Sales were almost non-existent – profits negative. There was no breakthrough in sight.

The product manager of this line was convinced that if the psychological price barrier of $1,000 could be broken, customers would flock. The current selling price was $1,100. In the meantime, while price reductions were being considered (not seriously), the product manager was spending his time and budget setting up new distributors around the country, building promotional materials, stocking shelves with minimum quantities, training sales reps on how to demo the product and, in general, “flogging” (his word, not mine) and constantly “badgering” (my word)  the distributors to produce more sales.

Two weeks of field investigation revealed a strategic opportunity to re-focus the market strategy.  Twenty four months after that refocus:

–          the selling price had increased from a $1,100 to more than $4,000. (Yes, it went up, not down!)

–          the largest single customer order went from $20,000 to more than a $1,000,000

–          the number of customers (hospitals) grew from 2 to more than 150

–          the product-line, and the people, were saved

–          the story added to the attractiveness of the IPO

And all this was accomplished while spending less in marketing, not more.

 

How was this accomplished?

This turnaround was made possible by discovering what, up to that time, was an ignored sector of the current customer base, where the product’s value proposition was significantly greater than for other customers.  The business was then refocused on that smaller, yet more lucrative, group of customers. Focus allowed a reduced marketing budget. The result was greatly accelerated adoption, revenue growth and profitability.

Peter Drucker in his book, “Innovation and Entrepreneurship” calls this, leveraging “the unexpected success”. It’s accomplished by digging through the customer lists, examining the motivations of a customer that bought (that you didn’t expect to buy), and discovering that the value proposition they received was well beyond both what you imagined and/or what other customers receive. If you then discover that there are a lot more customers out there like that one, with the same problem to solve, you have a great place to begin your refocus efforts.

There are basically two phases to these kinds of turnarounds. The first is a high level diagnostic exercise and the second is a process for assessing and selecting a lucrative alternative target market.

 

Phase I: The Diagnostic Exercise:

In this phase we encourage a simple hierarchy of 5 diagnostic questions to start.

Question 1:  Does The Target Market Have Momentum?

A dead man in a canoe will make forward progress if the stream is flowing fast – and a strong current makes up for a lot of inefficiencies in rowing, and can even compensate for inexperienced rowers rowing backward.  Momentum covers a lot of sins. Inherent market momentum arises from fundamentals in the marketplace – demographics, economics or regulations.

Question 2: Is the Economic Value Proposition Valid?

In B2B, both new and mature products must provide meaningful and calculable economic value from the perspective of the customer. Customers buy for their reasons, not yours – and even though you may be convinced that your product’s value proposition is universally meaningful, it does not mean your customers see it the same way. And not all customers in all markets receive that value to the same degree. So it’s important to get your team to honestly validate the economic value proposition through visits to target market customers in specific and different market segments.

Question 3: Is the Competitive Position strong?

The fundamental value proposition may be provided equally by any number of competitive offerings or alternatives in the market place. Unless target market customers can easily see your competitive advantage and recognize it as meaningful to them – you will not be able to break through the competitive noise.

Question 4: How effective is the channel in Communicating both the Value Proposition and Competitive Differentiation to the target market?

If you want a quick way to assess this, simply ask any of the team (marketing, sales, or engineering or channel partners) to calculate the economic value proposition (benefit) of the product or service offering to a typical target customer. Ask them to do it on the spot… back of the envelope. I am continually amazed how major product development and marketing initiatives are embarked upon without the slightest consideration to this critical success factor.

It is the natural instinct of marketing teams to spend a lot of money at this level and they typically believe that a magic combination of branding, promotion, websites, trade shows, collateral, promotions et al will somehow turn around a troubled product line. If there is any indication of a fundamental problem in the three primary diagnostic levels that come before this one – spending on level four will be fruitless.

We’ll take the canoe-and-stream metaphor one step further. A dead man in a canoe floating down a stream with strong momentum will actually make more progress than a live man in another canoe rowing backwards.  So not only do you need a solid market to support a valid economic value proposition, and a competitive advantage to communicate, you have to have people trained in how to communicate it… and do it well.

Question 5: Can You Consistently Deliver the Value Proposition?

Production and quality problems may be the cause of stalled success, but we rarely find that we have to go this low in the diagnostic hierarchy before we find the real cause of a market adoption problem.

 

Phase II: Evaluating and Selecting a More Lucrative Target Market

In each of the major turnarounds we have experienced in the last 10 years, the real key was not so much the lack of a meaningful economic value proposition, but rather a lack of focus on the segments of the market that would receive the highest economic, emotional or physical value from using the product.

All economic value transfer to your company starts with a customer believing that there is sufficient reason (economic, emotional or physical) to write a check to buy your offering. Different market segments will perceive and receive different levels of benefit from the same product. Markets with the highest value received will yield the highest selling prices.

The 12 basic evaluation criteria for assessing and selecting the most lucrative markets to focus on:

 1. Market Momentum: By this we mean the degree to which the market has fundamental demographic, economic or regulatory factors driving its primary demand. Here’s a caution: many firms and marketing teams get seduced by this factor alone – mesmerized by the lure of big numbers. Even large companies fall prey to this lure. But remember, the largest markets always attract the largest and highest number of competitors. Most of the time, it’s a better strategy to focus on a secondary market. It usually less competitive, less risky, less painful and penetration is quicker.

2. A Common Compelling and Significant Problem: It’s common that if one customer in a market segment has a problem, many others, to varying degrees, will be facing the same problem. If the economic benefit of solving that problem is significant, it’s likely that the willingness to pay a premium for solving it will be present.

3. Economic Benefit to the Customer: Calculate the economic benefit for a typical customer in each market segment. The likelihood is that you’ll get the highest selling prices in those segments where the economic benefit-received by the customer is the highest.

4. Financial Wherewithal of the Customer: Do potential customers in this market have the flexibility to buy and capture funding should the economic value proposition be significant? For example, the University market segment is typically characterized by hand-to-mouth funding availability and long research approval cycles.

5. Profitability of the Transaction: This factor assesses whether transactions in this market segment can be inherently profitable. Factors affecting profitability might be geographic, customization required and willingness to pay for economic value received.

6. Match of Company Assets and Capabilities: The annals of failure are replete with stories about companies who were seduced into attempting to penetrate large emerging markets for which their basic capabilities, assets, culture and structure were mismatched.

7. Accessibility: To what extent are the market, the channel and the key decisions makers readily accessible to your channel and sales process? You can’t communicate a value proposition to someone you can’t get to.

8. Lots of Unfilled or Under-Satisfied Sockets: A socket is a potential customer with the problem and the possibility of receiving economic benefit form solving it. Customers may have one or multiple “sockets”. In assessing market attractiveness we want lots of sockets – most of them still unfilled – or filled with a less-than-satisfactory solution.

9. A Well-Established, Vibrant Intra-Market Network: Studies of the diffusion of innovation reveal that the communication through the intra-market network is 13 times more significant in the adoption of an innovation than mass media.

10. Level of Competitive Turmoil: This factor gets rated opposite to the others. If there is a lot of competitive turmoil, rate this low. If not much, rate it high.

11. Experience and Reputation Match: If the market you are assessing already knows who you are, and your value proposition is consistent with whom you are, your brand name and your differentiators – then you can give this segment a high rating. This is the factor that many marketing people believe that “Branding Programs” can fix. But even the best branding program can’t make up for a poor economic value proposition or poor market momentum – and branding programs are typically very expensive

12: The Availability of a Relative Perceived Quality Leadership (RPQL) Position:Research from the Strategic Planning Institute, concludes that the single most significant factor affecting a business unit’s performance is the quality of its offerings relative to its competitors. The degree to which an RPQL-position available, unclaimed, or vulnerable (if someone already owns it), is a key factor in the selection of a segment on which to refocus.

 

Conclusions and Recommendations:

If you happen to find yourself in a situation of a stalled product line or business – our experience tells us that the last thing you need to do is spend more on marketing. In general, a business refocus is a much quicker and less expensive road to success.

A quick assessment of the customers that have already bought usually reveals those for whom the value proposition is significantly higher. Assessing the attractiveness of the market segment that they represent can reveal your opportunity to break out to success.

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Learn more about strategically improving low sales performance here, call us at 503.318.2696, email to qmp1@qmpassociates.com or connect through our Contact Us page

The Key Components of a Thorough Marketing & Sales Audit

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The word audit can strike fear into the heart of almost any person or organization that is its target. “Audit” conjures up images of someone in a position of authority digging through paperwork and records looking for evidence of malfeasance, mistakes, incompetence or non-compliance.

However, when a business performs an audit on their marketing and sales function, they typically just want to answer two basic questions:

  1. What can we do to improve our sales results?
  2. What can we do to improve our marketing and sales ROI?

At its purest intent a marketing and sales functional audit should not conducted to uncover incompetence, to fix blame or to penalize, but rather to discover opportunities to make both marketing and sales more effective. If the motivation of an audit is solely to find a scapegoat or assign blame, the problem is not in the firm’s marketing and sales function, but rather in its culture and leadership.

Step 1: A Quick Starting Point – The Self-Audit

We, at QMP use an 8 dimension, quick 50-question self-audit or self-assessment approach to determine whether there is need for deeper investigation. The output is a simple spider graph which illustrates the impressions that the executive team has of its marketing and sales organizational capabilities and effectiveness.

Figure 1

 

 

Copyright The QMP Group, Inc. 2012 All Rights Reserved

The shape of this figure provides a general idea of where performance gaps are perceived to exist. However, this is a chart which reflects executive impressions and personal observations – not a formal, detailed analysis of processes and capabilities. If the chart reveals high capabilities, but sales performance is actually poor, there is strong misperception among the executive team. But if both the chart output and the firm’s performance are satisfactory, the need for a detailed audit is probably not compelling.

(Click here to request this free self-assessment tool)

Step 2: The Detailed Audit:

If a detailed audit is indicated, the model in Figure 2 provides a framework for conducting that audit. Each of the 8 dimensions of the spider graph will be evaluated within that model.

Figure 2

he Marketing & Sales Engine™

Copyright The QMP Group, Inc 2002 All Rights Reserved

All gears must turn efficiently and together for optimum revenue generation. If any gear is broken or stuck, the engine stalls – and it can only turn as fast as its slowest gear. If a marketing and sales audit is going to identify opportunities for breakthrough or discover where things are malfunctioning, an audit must assess the systemic working of all the gears – even the little ones. One must even include in the audit the oil in the oil pan – which we call Performance Excellence, or the Culture of the firm. A healthy corporate culture can grease, or an unhealthy corporate culture grind to a halt, the firm’s marketing and sales engine.

Auditing the Gold Gear: Market Strategy:

“Even the best soldier becomes a casualty when engaged in unwise battle strategy.”

Audits of Market Strategy often lead to the greatest sales breakthroughs. It is common that a strategy audit reveals a lack of market focus. And though it may seem counter-intuitive to consider narrowing rather than expanding one’s market range, a redeployment of resources to a more tightly-defined, more economically lucrative market segment, almost always results in accelerated growth and less cost.

In one case, prior to a strategy analysis, a rather smug marketing and sales executive said, boasting “I don’t care who buys them (his products) or for what reason. All I care is that they buy a lot.” His attitude reflected itself in the highly unfocused efforts of his sales team. This manager did not expect significant impact, nor did he believe much would be revealed, from a strategy audit. In actuality, the audit triggered a strategic market re-focus which triggered strong double-digit growth for a handful of years while enabling price premiums along the way.

Opportunities for sales breakthroughs are available by looking into other aspects of the firm’s strategy as well, not just its strategic focus. Breakthroughs can be found in analysis of the channel-to-market, pricing policy and the alignment (or rather misalignment) of all the components of the strategy together.

Auditing the Blue Gear: New Business Development

The Business Development gear comprises what most people consider to be classic, tactical marketing. It includes the firm’s e-commerce process, web presence, advertising, sales tool kit, lead generation process, print collateral, trade shows, branding, press relations, publicity and social media. Contrary to the intuition of many – more emphasis on this gear is not always better. Conflicts arise when the strategic intent is to focus while the tactical marketing team is hell bent on “getting our name out there” to as many people as possible.

A Business Development audit can reveal such things as: a) misaligned messages and focus, b) opportunities for shifting resources from expensive promotional efforts (trade shows, advertising) to more effective and less expensive targeted publicity and press relations, or c) a poorly conceived sales tool kit.

One of the most common gaps in a firm’s Business Development program is the lack of a “Thought Leadership” program. In general, thought leadership is the process of building a highly visible industry presence and reputation for your firm and your people, as industry experts. When people look for a solution, they often seek out the experts first – most of the time these days, with an internet search. Thought Leadership is typically the role of technical specialists, marketing spokespeople or senior executives of your firm – the people with enough technical or industry knowledge to be considered experts. “Thought Leadership” involves public speaking, writing and publishing articles, writing blogs, participating in industry association panels, conferences and committees and even involvement in community issues. That activity is heavily reflected in internet presence.

Auditing the Red Gear: Sales Process Disciplines

Within the sales function, the audit checklist is long. Here’s a sampling:

  • the reality, quality and current value of the sales pipeline
  • the usefulness of the sales tool kit
  • the relevance, effectiveness and currency of the sales training program
  • overall sales process effectiveness
  • the discipline of providing, and quality of, market intelligence feedback
  • the sales person’s understanding of the value proposition, differentiation and ideal customer profile, particularly for new products
  • the alignment of the compensation plan to the strategy

Something as simple as re-establishing focus on the Ideal Customer Profile can achieve rapid and significant results. While running a mini-audit, one of our clients discovered their sales people did not have a clear idea of the types of opportunities they should be pursuing. Sales sent in everything they dug up for a bid, swamping the quote department.

We took the client through a focus exercise and profiled the ideal opportunity. It took only a couple of hours to formulate. Within 9 months of this re-focus, their win rate had increased by more than 15% while the number of quotes generated decreased by nearly 33%. They won more of the right kinds of profitable opportunities. It was that simple. Less waste. More success. No blame.

Low-to-no-cost adjustments to issues discovered in an audit are common and can significantly increase sales productivity.

For example, research has shown that 35% to 50% of the customer opportunities in a sales person’s pipeline will never reach a “buy” decision. These are costly, unproductive investments of sales and support resource that have ended up in the “No Decision” bucket.

The likelihood of an opportunity ending in a “No-Decision” is inversely proportional to the degree of the “Compelling Need” a customer feels about solving their business problem. If a customer is not faced with a compelling need to fix their problem they will not buy any solution – yours or your competitor’s. A quick audit of the sales opportunities in the “No Decision” bucket brings cold reality to bear on the need to do a better job of qualifying customers.

Auditing the Soil: Performance Excellence, aka the Culture:

Think of a company’s culture as its soil. At its best, it is nutrient rich and encourages growth. Think of strategy as the seed. Even a genetically perfect seed will not grow in nutrient starved soil. On the other hand, a genetically inferior seed, planted in nutrient rich soil, will at least yield some crop. Culture is everything.

The nutrients in a firm’s culture are its values and its behavioral norms. In our experience, the best cultures exhibit the following characteristics:

  • the setting of clear expectations
  • individual and organization accountability
  • clarity of ownership of initiatives and results
  • measurements and metrics
  • rewards and consequences tied to performance
  • honesty and openness in communications
  • periodic progress checkpoints (at minimum, monthly)
  • a sense of urgency to deal with barriers and challenges to progress
  • teamwork
  • a creative problem-solving orientation focused on solutions not blame

 In our engine model the culture is the oil in the oil plan pan in which the gears move. The culture lubricates and sustains a healthy engine. Without oil the engine seizes up. Without a solid culture of performance excellence, your business seizes up.

Conclusion:

A marketing and sales audit is simply a periodic analysis of what’s working and what’s not. It is a discipline that requires digging into the marketing and sales process to look for opportunities, barriers, bottlenecks and trends. We know from experience, that initiating an audit and analysis, with the discovery of root cause as its objective can spark sales breakthroughs and improve marketing & sales ROI.

A Final Note: A Marketing & Sales Organizational Self-Assessment is not the same as a Marketing & Sales Audit

A Self-Assessment is an organized compilation and scoring of your perceptions about the capabilities of your marketing and sales organization and processes. An Audit is a validation or invalidation of those perceptions from a deep dive into weaknesses and root causes of performance gaps. Self-Assessments record perceptions. Audits discover reality.

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Copyright 2010 The QMP Group, Inc. All Rights Reserved

Learn more about what kinds of growth opportunities a QMP Marketing and Sales Effectiveness Audit can reveal. Or, request a free QMP Marketing and Sales Organizational Capabilities Self-Assessment through our Contact Us Page. We’re here to help.

Finding New Markets

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Where does one begin the search to find new markets?

The good news is: new high-potential market opportunities are typically discovered closer-in than you would imagine. Some await discovery hidden in the clutter of your current customer list. Others find you, not the other way around.  In either case, your task is to recognize and quickly assess their viability.

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The biggest barrier is not that opportunities do not exist, but rather that firms have not dedicated a resource, and put in place the discipline to continually explore, vet and test their viability. New market opportunities can quickly and positively impact the bottom line. So, the key to growth is learning a) how to consistently be on the lookout, b) how to recognize possibilities and c) how to test their reality and viability.

Places for discovery:

Here are six places that have created the biggest up-sides for our clients.

  • Current customer list: it’s the small customers, not the big ones
  • Fulfilling customers’ unrecognized needs: the iPad and the SUV are good examples
  • Your competitors’ current markets: they are not as homogeneous or impenetrable as you might believe
  • Channel-to-market: is your channel providing more or less value to your customers than your customers need?
  • The sales pipeline: most sales people are poor at assessing an opportunity for its real, bigger-picture potential
  • International: some international demographics and economics are compelling

If you think you’ve already looked in these places, you might want to check again after reading this blog post.

Your small customers:

Some of the most significant growth opportunities we have seen have come from analysis of small, unexpected customers that have, under the radar, slipped into a firm’s customer list.  They are typically considered insignificant and/or outliers for two reasons: 1) the revenue amount represented was relatively low and 2) they came from outside the primary market targets of the firm. However, a quick analysis in several cases revealed that these customers were actually representative of much larger markets – markets with large numbers of customers with the same significant unmet needs that were already being satisfied by the firms’ product lines better than any other offering available.

In one case, the small “insignificant” customer was representative of 20,000 similar organizations nationwide, none-of which had as good a solution to their problem as was being delivered by the firm’s software. This new market opportunity was tested and validated within 90 days. Growth over the next two years in that market more than doubled the company’s revenue

Well-known business thought-leader, Peter Drucker, in his book “Innovation and Entrepreneurship”, named this phenomenon “the unexpected success”. “Unexpected successes” are characterized by customers buying your product from markets you had not considered, getting benefits you had not conceived because your solution was inherently better than alternatives they had to consider.

This common dynamic means that someone in your firm should always be asking your “unexpected-success” customers these four questions:

  • Why did you buy our solution?
  • How many more people like you are there, out there?
  • How many of those other people have a good solution now?
  • Where do these people hang out?

The lack of a consistent asset dedicated to this analysis, delays the discovery of breakthrough new opportunities.

Your customers’ unmet needs:

The iPad, the SUV and the microwave oven are examples of new product ideas that were formulated to meet customer needs that were “subconscious” or simmering just below the surface of a customer’s “experience” with current solutions. The key words in this sentence are “subconscious” and “experience”.

Typically, in smaller companies, not enough time is dedicated to thinking about the subconscious needs of customers and the customer use experience.  Most product development roadmaps we have seen are driven by; a) urgent responses to competitive moves, b) the drive to reduce product costs, and c) evolutionary feature extensions to current offerings. None of these create new market breakthroughs.

New market breakthroughs come from insights into customer behaviors, problems and product usage.

Your competitors’ current markets:

In the 1970’s GM (50%), Ford (25%) and Chrysler (15%) collectively owned 90% or more of the United States automobile market. Now some 40 years later, imports represent a huge portion of that same market. The lesson learned is that if you do not fragment your own market, a competitor will do it for you.  The caveat: In each segment of the competitor’s market you target, you must have a relatively advantaged solution.

Imports won their initial US auto market share by fragmenting the US automaker’s markets and offering a value proposition that represented a significant value proposition improvement in one specific segment – the industry’s most vulnerable – small, economic compact cars. After establishing that foothold and clinching their quality reputation in the compact segment, they then stepping-stoned through the other segments – leveraging that quality reputation.

Your new market opportunity may simply be created through a focused initiative at a segment of your competitor’s markets that is most vulnerable due to that competitor’s neglect of the segment. This is particularly effective if the competitor is much larger.  You should never attack a competitor on all fronts at once.  However, all competitors are vulnerable to fragmentation and differentiation aimed at dissatisfied or under-satisfied customers in some sub-segment of their business.

Your channel to market:

Most firms decide on their channel-to-market based on what benefits it provides in market coverage. The market (customers) really only care about the services the channel provides to them – not the exposure it provides to the firm. If the channel is under-satisfying the needs of the customers’ this represents an opportunity for a) increasing value delivered and compensation received, or b) increasing market share based on service.

Amazon was launched as a channel alternative to brick and mortar book stores.  It didn’t capture all book customers – but it did exploit a vulnerability and weakness of the then current book stores by offering convenience and in-home browsing. It created the on-line-bookstore market.

Your sales pipeline:

A sales person’s effort in pursuing an opportunity is typically influenced by three factors: a) the anticipated initial purchase amount, b) the magnitude of the long-term opportunity as communicated to the sales person by the customer’s purchasing department and c) the commission rate associated with the opportunity.

The first thing to recognize is that customer predictions of ultimate volume activity (part b above) are typically overstated – many times to hold up a carrot in order to exact the best pricing for whatever it is you are going to quote. More important than the volume prediction, is its logic. It should never be accepted at face value. Discovering the logic is what separates pursuit of a typical opportunity from discovery of a breakthrough market.

To test the validity and logic of a large prediction the savvy sales organization pursues a revealing question chain:

  • What ultimate economic, regulatory or demographic market factors will drive such high demand for your customer’s product?
  • Is this product introducing a whole new revolutionary value concept that no one has offered before (like the first microwave oven) or is it an evolutionary product (like current microwave oven offerings) – just bouncing along an incremental improvement curve?

Purchasing managers almost always over-predict the anticipated adoption of their new products. However, the answers to the two questions above may reveal a truly large and compelling market opportunity. For example, a firm that makes metal fabricated parts for military and aerospace customers may find in its pipeline an opportunity for a part for a medical device.  That opportunity may represent a number of situations: a) someone looking for a competitive quote to replace their current supplier, b) the need for a part for an evolutionary incremental product or c) a breakthrough new product.  Looking at the face value of the opportunity may not reveal the truth behind the opportunity.  Only by delving deeper can the truth of new market opportunities be discerned.

International:

The demographics and economics of India and China are intriguing. The average age of the population is much lower than in the United States, their educational levels are growing, their income per capita is growing and their middle class is also growing.  Indra Nooyi, the current CEO of PepsiCo, when asked where her company will be investing in the near future stated those facts – along with two population statistics that clinched the answer.  India has a population of 1.1 Billion people and China a population of 1.5 Billion people. (Current stats are 1.2 Billion and 1.3 Billion people respectively).  For PepsiCo the investment decision is made.

Those investments will require infrastructure and support – a “demand-halo” – from smaller companies, creating an opportunity for international expansion.  Navigating the local laws, regulations, cash repatriation and other idiosyncrasies of international expansion is a bit of a challenge but it can be done.  If you don’t do it, someone else will – likely some competitor.

Conclusion:

Given the incredible amounts of money spent today on branding, websites, Search Engine Optimization, sales promotions and tradeshows it is sad that a small portion of those funds do not find their way to support a “market opportunity sleuth” (MOS).  Even if your firm has only 10 people in it – assigning the job of MOS to even one-half a person would be wise.  That person should be responsible for scouring the areas listed above and reporting monthly on findings. After all, even if only one breakthrough opportunity is discovered in the course of a year – the investment would be worth it.

Read our related posts “Diagnosing Stalled Sales” and “Foundational Marketing – and please send us your comments.

For more information about Finding New Markets and Assessing their Viability call QMP at 503.318.2696 or eMail Jerry Vieira at jgv@qmpassociates.com

Copyright Jerry Vieira and the QMP Group, Inc., 2012

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Lazy Due Diligence: Improve the Analysis, Improve the Outcome

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Too often, acquisitions don’t deliver the results expected

You are probably as perplexed as I am, at the repeated difficulty that acquisitions have in delivering on their promises of growth.

The title of a June 2006 survey report from Accenture says it clearly, “Executives Report that Mergers and Acquisitions Fail to Create Adequate Value”. The subtitle was, “Deals Often Come Up Short on Delivering Anticipated Revenues, Expected Cost Savings and Successful Integration of Information Technology”, caps the point.

When asking acquirers what causes these shortcomings, there are usually a handful of common responses.Sales_Failure

• “The integration is not going smoothly.”

• “Their market took an unexpected dip”

• “Their new product isn’t coming out as fast as we’d like”

Few will admit that the culprit may have really been an inadequate due diligence process – one that failed to reveal some fundamental weaknesses in the market position or capabilities of the target company.

The “Dead Man in a Canoe” Model of Acquisition Due Diligence

The canoe model begins with the premise that even a dead man in a canoe will make great progress downstream, if the current is flowing fast enough. In fact, a dead man in a canoe will make even more progress than a live man rowing backwards. But, if the water level in the stream is so low that the bottom of the canoe is hitting the stream bed, no one – a good rower, a dead man or a backwards rower – will make any progress at all, no matter how much someone paid for the canoe.

Five factors can be used to asses the reality of the growth potential and the marketing and sales capabilities of an acquisition target.

• How does the acquisition select their target markets and where to invest their development resources? (How did they select the streams to put their canoes in?)

• What is the fundamental health and momentum of the primary markets they participate in and depend on? (How fast are the streams flowing that they currently have canoes in?)

• How valid are both their claimed value proposition and competitive advantage? (How good are their canoes?)

• How healthy (really) is their sales pipeline? (How fast are they moving downstream?)

• How talented and capable are their people? (How strong are their rowers?)

Few investment analyses dig deeply enough to understand these factors. Yet, they ultimately portend long-term success or failure.

The Five Under-Acknowledged Assessment Factors

1. What process do they use for selecting their target markets and investments?

Most smaller acquisition targets simply don’t have their own good process for selecting markets to target. If the acquisition target is currently successful, it may have been through rapidity, responsiveness and informality in the organization that allowed quick adjustment when a market was not responding. Rapid trial and error eventually resulted in the discovery of a “savior” market before cash ran out.

If the acquisition target does use a good target market selection process, then it is probably being validated by their growth history. But, if their growth is temporarily stalled, take it as a red flag. Putting the acquisition’s markets through your own process for identifying lucrative target market opportunities provides a quick sanity check.

If the acquisition target doesn’t have a good process, then that upgrade is the first thing to do when, and if, the acquisition is completed. Leaving this upgrade incomplete after acquisition, assures future stumbles.

2. What are the health and momentum of the primary target markets the acquisition participates in and depends on?

Market demand and momentum are driven by a combination of three fundamental factors; demographics, economics and regulation. There isn’t much anyone can do about the first. However sometimes simply shifting market focus from one segment of the market to another catches a subcurrent of demographics that accelerates demand.

For example, the number of hospitals in the U.S. is declining. The Philips defibrillator business can keep trying to sell into emergency rooms in a saturated hospital market or move to the consumer/commercial market fueled by the demographic of aging baby boomers and government mandated emergency preparedness initiatives.

The economics factor is more complex than demographics. There are macro trends, micro (market specific) trends and, what I’ll coin as, nano-economics (the economics associated with the individual customer sales transaction). If all three are flowing in the right direction, the results are positive. However, streams usually slow down top to bottom. First, macro economics fail, then micro, then nano. For the experienced executive, finding and evaluating the macro and micro level momentum factors should be relatively easy.

Too many acquisitions are bought for product reasons (complementary offerings, new technology, brand name et al) vis-à-vis solid market momentum reasons. Market momentum covers up a lot of inadequacies, at least at the beginning. Its better and easier to have market momentum on your side when the inevitable challenges of acquisition integration arise than not.

3. How valid are both the acquisition’s value proposition and their competitive advantage?

Here’s a sad, but not surprising, story. At a mini-workshop for a group of a dozen CEOs and owners of small-to-mid-sized B2B businesses, they were given a simple challenge. They were asked to imagine their ideal target customer prospect and match it to their best product or service offering. Then they were asked to calculate the typical five year economic benefit that the ideal customer would receive from that offering.

Not one person in the room could do it in the 15 or so minutes available!

In an article by this author published in the December 2007 IndUS Business Journal entitled, “The Seven Laws of Performance Excellence”, the first is the Law of Economic Value. It states, “The source of all economic value in any business is a customer’s belief that they will receive favorable economic, emotional or physical value in return for the cash they are willing to spend with your company”.

There must be a customer-perceived imbalance in the economic, emotional or physical value equation, in favor of the customer. It is what drives nano-economic momentum. This is the true nature and reality of the acquisition target’s value proposition. It drives new product adoption. How well it is delivered vis-à-vis competitors is the true measure of competitive advantage.

A number of years ago, I was asked by a capital equipment companyto review their acquisition rationale for a target firm. I asked, “Can you state how the acquisition of this firm will ultimately provide increased economic value to either your, or your acquisition target’s, customer base?”

Stunned silence answered the question.

If an acquiring company cannot somehow tie its target acquisition investment to the Law of Economic Value, the natural selection forces of the marketplace will ultimately depreciate the value of that investment. Value to a customer ultimately rules.

4. How healthy is the sales pipeline?

Does the acquisition target have, and use, a good disciplined sales process?

Sales opportunity pipelines (or, as some call them, sales funnels) are common support documents in the due diligence process. Rarely does an acquiring firm have a good process for assessing its validity.

Here are six suggested criteria for assessing each major opportunity in the pipeline:

1. Compelling Need: To what degree does the customer have a critical need to solve the problem that the company’s product addresses? Is this awareness from the customer’s perception or our own? Can that potential customer do nothing? Sales research shows that between 30 to 50% of all pipeline opportunities are lost to “nodecision”.

2. Match: How closely do our capabilities match that customer’s need?

3. Economic Equation: How strong, from the customer’s perspective, is the economic value proposition for fixing this problem? Has this value been demonstrated to, and believed by, the key customer decision makers at this account?

4. Competitive Position: How do the firm’s competitive capabilities compare, from the customer’s key decision-makers’ perspectives, with other possible solutions?

5. Champion: How strong is the internal champion at the customer account? How politically powerful, influential, receptive is the champion in the decision process?

6. Leverage: In addition to a sale, what else is gained if the account is won? Does the opportunity open up a new market or help develop a new capability? Does it provide a referral and great testimonial?

It may seem that this kind of effort for each of the target customer’s sales people and each major opportunity in the pipeline is a lot of work. Well, it is called due “diligence”, isn’t it.

The truth is that, if you use a pipeline validation process like this, pipeline “fluff” falls away quickly and the real value of the sales opportunity pipeline is revealed.

The second factor to be considered in sales function assessment is whether the acquisition target has, and utilizes, a good sales process.

A good sales process is recognizable by its ability to not only win a high percentage of opportunities in the pipeline, but also do the following:

• Produce frequently updated, easily visible pipelines

• Create accurate bookings forecasts

• Help formulate sound account opportunity strategies and action plans

• Collect, communicate and process account, competitive and other market intelligence • Sell economic value, and

• Optimize a sales person’s time

5. How talented and capable are the marketing and sales people?

When embarking on an acquisition and beginning to meet the people at the acquisition target, those employees can usually be sorted into three types.

The first are the “fearful-skeptics”. These people are simply trying to keep their jobs, stay under the radar and do whatever it is they need to survive the acquisition integration.

The second type are the “hostiles”. They fear loss of power or influence, the coming discomfort associated with an upset of the status-quo, exposure of their incompetence and/or visibility given to their lack of progress.

The final types are the “eager-embracers”. They are the ones that usually say something like, “I’m looking forward to this. I can really see the benefits. I’ve been formulating some innovative ideas for some time, that I’d like to share with you. How can I help?”

These last are the few who will already have developed their own process, who continually want to see things improve and who simply can’t stand ineffectiveness, slowness and inefficiency. Just a few of this type is critical to have in a good marketing and sales organization.

In assessing the people and talent there should be two key roles represented.

One Good Marketing Strategist: One good, talented marketing strategist can create programs that launch firms into incredibly rapid growth opportunities.

A Few Good (Sales) Men: In sales there should be a few very good and influential sales people that can act as internal opinion leaders. In this role they provide support for the transition with peers and customers, and, through their example, help other sales people learn how to manage the acquisition integration and its incumbent changes.

Conclusion:

There are many reasons for acquisition.

Venture Capital and private investment firms look to discover and increase value for extraction at some future pointand commercial businesses typically look to acquisitions to accelerate growth, capture IP, open up new channels or gain rapid entrance into a new market.

Independent of the type of acquiring firm or the ultimate purpose of the acquisition, those embarking upon the due diligence process are encouraged to adhere two basic principles:

• Be cautious not to violate the Law of Economic Value — the negative consequences of violation may not be immediate, but they are inevitable, and

• Put more “diligence” into the due diligence process when it comes to the evaluation of the marketing and sales functions of the acquisition target.

One final point: Should the good revelations outweigh the bad in this 5-factor analysis and the deal close anyway, by virtue of having dug deep enough to discover the acquisition target’s weaknesses, the acquiring firm has already laid out before them the roadmap for improvement.

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To learn more about the QMP approach to due diligence click here.

Lean Marketing and Sales: The Art of Optimizing both Customer and Company Value

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“Lean is the process of maximizing the value delivered to customers by eliminating any wasted activity or expense marketing or sales process that does not create, communicate or enhance customer-received value.”

In this QMP Insights blog we offer an approach for improving both top and bottom-lines through the application of “Lean” principles to six key areas in the marketing and sales function of a firm.

 

Getting Started with Lean in Marketing and Sales:

iStock_000023705897XSmallThere are three foundational principles that must guide any application of lean principles to the marketing and sales function

First, the law of economic value is always at work. That law states: All economic value accruing to your firm has as its source, the customer’s perception that they will receive more value (economic, emotional or physical) from your product or service than it costs them (economically, emotionally or physically) to purchase, acquire, set up and use.

Second, avoidance of the application of lean concepts creates growing breaches in your business that competitors will exploit. If there is any place in your product or service offering, customer service process or sales approach that customers consciously or subconsciously perceive as not providing the highest value possible, that gap will be the place you are most vulnerable to competitive attack.

Third, when assessing the relative importance and value of deploying a specific lean initiative, use the first and second guiding principles above. Considering the deployment of lean principles in your product and service portfolio or your marketing and sales function only as an opportunity to reduce costs can result in customer backlash. Bank of America felt that backlash recently when they instituted debit card user fees and we all feel the frustration when we can’t reach a real person in customer service.

 

The Six Targets for Lean in Marketing and Sales:

Market Focus

Face the facts. Your product or service offering does not offer the same set of economic, emotional or physical values to all market segments equally. Lean means focusing on those market segments where the value-received by customers is the highest. If that situation exists, the law of economic value is satisfied and research shows that the following benefits accrue to your firm:

  • the ability to garner price premiums
  • faster market penetration
  • higher customer satisfaction
  • more peer-to-peer, word-of-mouth customer communication of that value proposition
  • higher interest in your product from channel partners
  • higher probability of achieving market share leadership in that segment
  • reduced marketing expense
  • improved sales win rate and faster time to close
  • reduced product design costs and a clearer product evolution path as a keener awareness of the customer needs in that specific market are revealed
  • greater returns from focused social media and website investments

Market focus is Lean in action.

 

Market Communications

The wisdom of lean and focused market communications is the toughest principle to convey to marketing and sales teams. The common fallacy is that, “more marketing expenditure is better than less”. Marketing and sales teams typically will fight tooth and nail to avoid reductions in this sacred arena. They believe that more marketing dollars across more expansive markets means more customers. Not so.

Research (Everett Rogers, “The Adoption of Innovations”) shows that communications of a new idea is best accomplished through opinion leaders in a target market. Peer-to-peer communications, accelerated by opinion leaders, is 13 times more effectively than mass communications. Focused marketing communications programs to reach those opinion leaders, with focused value propositions achieved through market-focused product design is as effective as can be achieved. Social media can help – as long as it is focused.

Focused marketing communications is Lean in action.

 

Channel to Market

Your business will begin to erode if your channel-to-market provides value only to you and not your customers. Marketers must be vigilant to assure their channel continues to deliver real value to customers and clients. Let’s take Amazon.com as an example.

Amazon.com is, at its most basic level, merely a channel-to-market. They do not write books or build any product. Even the manufacture of the Kindle is outsourced. Amazon’s growth was the result of tapping into an under-satisfied customer value (convenience) and leveraging an emerging technology (the Internet).

By building an on-line bookstore coupled with an efficient order fulfillment process, Amazon stole the customer segment of the book market motivated by convenience, not couches. Relevant value to that segment is: browsing at home, saving gasoline, saving time, the use of peer reviews and comments to facilitate decision-making, fast customer service, the opportunity to contribute reviews and comments, and avoidance of the “out-of-stock to be supplied by another store across town and we’ll call when when it’s in” situation. The introduction of “Whispernet” (the wireless purchase and instant delivery of e-books to the Kindle) further enhanced this basic value set. And taking this value proposition even one step further, Amazon has now added free, unlimited on-line storage of your complete media library (music, books, movies) in the cloud with the Kindle Fire®. Wow!

All this value provided by basically a channel-to-market. Amazon understood how to find untapped needs and use technology to meet them efficiently. This is Lean in action in the channel-to-market

 

Sales Process Discipline

An oft cited statistic claims that 30% to 50% of the opportunities in the average sales person’s pipeline won’t close because the customer makes a decision not to buy anything. The sales person has, in effect, wasted time and money pursuing something that was destined to never result in a sale. How can one really know if a specific opportunity will actually result in a purchase?

The answer has several parts.

First, if Lean principles are applied in the previous steps (strategy, channel and communications), there is a much higher probability that a purchase will occur, because the value proposition and its communication are more efficient, focused and aligned with customers that are likely to receive the greatest value from your product or service.

Second, if the firm has developed an ideal customer profile that describes that buyer type, it enables the sales team to quickly identify a good potential prospect and politely decline continuing involvement with a poor prospect.

Third, there is a simple set of 5 criteria that can improve a sales person’s ability to quickly qualify an opportunity.

  • intensity of the customer’s need or problem,
  • degree to which the product offering can meet that need,
  • degree of the economic, emotional or physical value the customer will receive by using the product or service,
  • customer perception of the relative competitive advantage of the product or service solution
  • the existence of a customer champion for the solution

These principles put Lean in action in the sales process.

 

Market Intelligence Feedback

Market intelligence is critical to success. Sound market strategy depends on current and valid market intelligence. That intelligence may comprise some or all: competitive intelligence, customer satisfaction, barriers the sales people keep running into, the health of the customers’ markets, usage idiosyncrasies and a host of other informational tidbits. The sales team must be at the forefront in gathering this data, because the sales team is company asset that is in the most frequent contact with the customer.

The most efficient way to gather market intelligence is through weekly or monthly sales reports. Contracting market research firms to gather market intelligence from the same customers the sales people talk to each month anyway, is admitting to un-Lean practices and indicative of other organizational or culture problems.

Here are some thoughts about making your Lean market intelligence gathering:

  • make a bullet-point market intelligence section a required part of your sales person’s weekly or monthly report
  • train your sales people how to question and observe – not just spew the benefits of your product
  • include providing market intelligence in the sales compensation plans and sales position descriptions
  • provide the ability to award spot bonuses for the most timely and important pieces of information that come your way
  • read the market intelligence reports; think about and acknowledge them by calling back the sales person who provided the information, thanking them and getting more information

Listen carefully when sales people talk about gaps in the customer’s perception of your product’s value delivered. The first comment is inevitably pricing-related. Pricing-related value gaps are more about market targeting, product design and the customer’s perception of value received than actually about pricing. Pricing is only a symptom of a bigger strategic problem.

 

Conclusion:

The application of Lean principles to marketing and sales is easy and inexpensive. A firm of any size and market can deploy Lean. Lean principles assure that customers get the best value they can – and in return, consistent with the law of economic value, your business optimizes its own economic return.

Click here to talk to QMP about Lean Marketing and Sales

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Accelerating the Market Adoption of an Innovation

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The Product Development and Management Association Glossary of Terms defines failure rate as the percentage of a firm’s new products that make it to full market commercialization, but which fail to achieve the objectives set for them. By that measure, it is not surprising that a quick internet search on the subject of product failure rate yields studies that claim anywhere between 50% (commercial) and 90% (retail food) of new product or service offerings fail.

iStock_000009333210XSmallFailure can mean some or all of lost time, wasted money, missed opportunity, damaged credibility, tainted brand reputation, enhanced competitive vulnerability, lost jobs, truncated careers and a host of other unpleasant outcomes. So, whether the real failure rate is closer to the lower (50%) or higher (90%) end of the estimate is not as important as recognizing that discovering ways to improve it is essential.

For the past 15 years a good part of our work at QMP has centered around helping business-to-business clients turn around under-performing businesses and products. Many of them were struggling with getting new offerings off the ground or gaining traction in the marketplace. We’d like to share with you a bit about what we have learned, in hopes that it may improve your probability of success and help you avoid the myriad consequences of failure.

 

The Empirical Science Basis of the Adoption of Innovation:

In 1962, Everett M. Rogers wrote a breakthrough work entitled, “The Diffusion of Innovation” (republished in its fourth edition in 1995 by The Free Press). In it he compiled a number of studies documenting adoption successes and failures of all types of innovations over the past 100 years — from sociological to scientific. He included varied research findings, such as the struggles of the Chilean health department with getting Andes mountain villagers to adopt the habit of boiling water for health reasons, Iowa farmers adopting hybrid seed corn and Pittsburg school system principals adopting new math.

While the lessons learned from reading such a remarkable book are many, two items stand out above all others; 1) the adoption or diffusion of an innovation is not a linear phenomenon (meaning it does not gain its energy and momentum just one isolated customer at a time across a wide range of groups), and 2) adoption is significantly accelerated by the dynamics of the intramarket communication network (how buyers in a market or group meet, discuss and communicate ideas).

In fact, one of the most amazing conclusions coming from the research is that communication through the intramarket network is roughly 13 times more effective than mass communication in the adoption of an innovation. This interesting research conclusion predates the emergence of social media, blogging and Tweeting which, by now, are well recognized as an effective internet-powered intramarket communication vehicles.

 

Mass Communication and Struggles with Adoption

One of the most common problems we find with innovations struggling to gain a foothold in the marketplace is the parent firm’s unwillingness to focus. Rather than taking a chance on a focused launch initiative, they believe it’s better to try a broad one and see what sticks. In addition, the management team and product people are typically so convinced of the universal applicability of the innovation, that it leads the firm to believe that “getting our name out there” quickly, to masses of potential buyers, will be all that is required for success. This is rarely the case.

In pursuing such a course of action, it is not uncommon for a firm to find they have spent valuable economic resources on grand branding schemes and exposure initiatives with a minimal real impact on market penetration. Applying for a second round of dilutive funding to finance a second run at that same holy grail is an option—and some select it – with the same results.

 

Fragmenting the market to gain a profitable foothold

Buyers, particularly commercial and business-to-business buyers, invest in an innovation because they believe the economic value they will receive from that innovation will exceed the amount they have to pay for it. The market success of an innovation requires that the market which you’ve targeted has a significant enough proportion of customers with a big enough common problem to create a compelling argument for an investment to solve it. The key is, not all market segments have the same problem to the same degree. Focusing your launch on a particular sub-segment of the market where the economic value proposition of the innovation is compelling, creates a much higher probability of success than a broad approach.

 

If it’s that simple, why don’t more businesses focus?

There are many reasons: First, investors prefer firms that are moving after big markets with big payoffs. The bigger the market envisioned, the bigger the potential payout. Secondly, the inventors have a sincere belief that “everyone” can eventually use their innovation—and eventually they may be correct. Third, innovators and marketers alike get caught in the excitement, glitz and hype of launching a major market initiative launch. It can be a very heady experience. And, fourth, they simply have too much marketing money in the budget and don’t know how to manage it well.

Trying to stand in front of the innovation-launch train as a voice of reason, as it barrels down the track of a well-funded general market launch is fruitless. It’s best to wait till the train burns out its fuel and then catch up to it further down the track when it has stalled.

Not withstanding the previous explanations, there is a more fundamental reason why people don’t focus for success, they simply don’t know how to select the best markets to focus on.

 

Criteria for Target Market Attractiveness:

Over the years of working the challenge of assessing and selecting the target market segment that will yield the highest probability of success for an innovation, we have developed a series of criteria that seem to work effectively.

Market Momentum: Different market segments have different economic, demographic and regulatory factors which affect its basic momentum. When selecting a market, we want our investments to be lifted and propelled downstream as much as possible by inherent momentum factors in our favor.

Compelling Need: This factor refers to the extent the problem the innovation is designed to resolve is compelling from an economic, safety or regulatory standpoint. Take the Segway for example, the innovative two-wheeled, gyroscopically-balanced personal transport scooter. It’s general market launch, after much early hype, has been less than hoped for by investors and its inventors alike. It is, however, finding its way to higher success rates in mobile security markets, on campuses, malls, large commercial complexes, inner city tourism, and in a slightly modified version, golf courses.

Match: The extent to which the innovation matches and completely resolves the compelling need it was designed to fix. A perfect match will increase customer satisfaction and improve the ability of potential customers to rapidly make the innovation-to-problem-fix mental link.

In the early days of flat panel monitors, when they were expensive compared to bulky CRTs, one of our clients attempted to penetrate the general desktop market with this own version of a flat panel monitor. At a $1,000 selling price, compared to a $249 monitor price, the effort failed. However, when the effort was refocused on hospital rooms (a much smaller segment of the market but with a more compelling set of needs), the monitor was wildly successful. In hospital rooms, space is constrained, electromagnetic interference from CRTs cannot be tolerated around sensitive medical monitoring equipment and sparks from high static CRTs can’t be permitted in oxygen rich environments. The client’s initial adoption failure was turned to success simply by redirecting the market focus—and there were no changes required to either the average selling price or inherent product features. In fact, the selling price increased as, over time, hospitals requested additional features to increase the basic capabilities of an already good solution.

Socket Count: A socket is a potential place where the innovation can be installed. For example, a first estimate of the potential sockets for the microwave oven at its inception would have been the number of households without one. Today, the number of sockets available for new microwave oven innovations is going to be limited to those sockets that either don’t have a microwave already installed (very few) or those for which the innovation solves a compelling need or significant shortcoming with their existing solution.We want to find a market to target our innovation at that not only has a compelling need and positive momentum factors , but also a lot of unfilled or under-satisfied sockets.

Value Quotient: Closely related to the magnitude of the compelling need is the balance of the value quotient from the customer’s perspective. This relates to the value of the benefit to the customer of solving their problem with your innovation, divided by the cost of acquiring, installing, learning and using it. There may be a significant compelling need, but if the cost of the innovation needed to repair the compelling need is prohibitive, adoption will be slow. A rule of thumb is that within three years of purchase the innovation should pay back at least 5 to 1 in bottom line cash flow for the customer. A further note on this point: Value received is not completely economic. Value comprises the complete suite of benefits encompassed in the Economic, Emotional, Political and Physical realms of what your product/service delivers.

RPQL Position Availability: RPQL stands for Relative Perceived Quality Leadership. Forty plus years of research in the Strategic Planning Institute PIMS data base (Profit Impact of Market Strategy) indicates that the single most important factor affecting a business unit’s success is the market’s perception of the relative perceived quality of its goods and services compared to its competitors. One important point to remember—perceived quality is related to the segment of the market. Not all segments perceive quality in the same way. Charging after a market that already has an RPQL leader is equivalent of a military frontal assault on an entrenched position. Not a wise decision.

IntraMarket Network: As mentioned earlier, innovations diffuse more rapidly if there is a strong intra-market network through which the value proposition of the innovation can be communicated—person-to-person, customer-to-customer. The intra-market network comprises two parts a) its venues (events, forums) and vehicles (journals, publications, websites) and b) its intra-market opinion leaders.

Opinion leaders are the real geometric multipliers of the value proposition message. For opinion leaders to be most effective they need to have four important characteristics. First, they need to be rabid believers in the innovation and its value proposition. Secondly, they need to be well-networked. Third, they need to be highly credible in the network of interest and finally, they need to be natural sales people—anxious and completely un-shy about communicating new ideas to friends and colleagues alike.

The next five target market attractiveness assessment criteria are important as well, but if the market isn’t attractive after an analysis of the first seven the second five are not worth working through.

Profitability: Selling the innovation must be inherently profitable. If you feel you have to reduce price to gain traction, it may simply be that you have a questionable value proposition or your perception of the customer’s compelling need is misunderstood. It certainly should bring into question your thoughts about the economic equation factor. Sometimes simply changing the target market can change the profitability by allowing pricing in proportion to unique benefit—as in the flat panel terminal example stated earlier.

Competitive Turmoil: The higher the competitive turmoil the more expensive it will be to create a successful presence. The exercise of focusing down to a smaller, less competitive market segment, will provide a higher probability of surviving any inevitable market shakeout.

Brand Leverage: It’s easier to gain market attention for your innovation if your brand speaks innovation. Apple will easily get media and intra-market opinion leader attention for a new consumer, music or creative computing idea. Volvo will get attention for an innovative auto safety related product—like a car seat or anti-roll stabilizer for an SUV. Neither will get brand traction if they introduce a pillow or dinner ware.

Accessibility: Sometimes markets may be attractive but relatively inaccessible because of sales channel limitations, aggressive competition for limited shelf-space, import/export restrictions, licensing requirements or other considerations.

Perceived Value of Differentiators: This last factor comes into play when the competitive turmoil factor is less than optimum. It assesses the degree to which your differentiated position for the innovation, compared with your competitors’ approaches, has meaning and economic value in the target segment under assessment.

 

Conclusions:

What we have learned in years of helping our clients with the market introduction of their innovations is this: Focusing on those markets that exhibit the best composite results on the listed assessment factors results in:

  • More rapid adoption
  • Higher average selling prices
  • Higher profitability
  • Higher degree of customer satisfaction
  • Lower market launch expenses
  • More defensible positions
  • Higher probability of surviving shakeout
  • Learning how to do it consistently in the future
  • Less ownership dilution

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Copyright 2006 The QMP Group, Inc.   All Rights Reserved

 

For more information about how to accelerate the market adoption of your innovative product, contact QMP at qmp1@qmpassociates.com or 503-318-2696

 

The Basics of Foundational Marketing

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“You can’t build a durable building on a weak foundation.”

 

We’d like to share an insight that has helped executives and business owners sort through all the hype and claims over the last several years about an ever growing list of “gotta-do” new marketing and sales techniques.

If you’re a General Manager, business owner or C-level executive, your marketing team probably approaches you annually with a laundry list of funding requests to support their critical marketing and sales programs for the coming year. Those requests may include any or all of; a website upgrade, a branding program, a social media expansion program, a blog, a publicity and PR program or maybe even a new six-figure trade show booth – not to mention the additional staff to help manage it all. How do you decide what to approve? How do you sort through all the hype and enthusiasm about each program and decide what will truly give you the best return for your investment?

The graphic below illustrates an alternative approach to selecting marketing initiatives.

Foundational-Marketing-JMost people think of marketing as one or more of the items listed on the right side of the graphic — in the grey, typical-marketing circle. Stop a moment and consider the list. Is this what you think of when you think of marketing? If yes, join the majority club. If not, join the other group. It has fewer members – but they are the ones who have found the secret to getting greater return on their marketing buck.

Before those of you in the smaller, enlightened group get smug, remember “typical marketing” programs aren’t completely useless. Let’s be realistic. These days, unless you operate a lemonade stand that will only be open for two weeks in August, everyone needs a website. So let’s agree that, to some degree, typical-marketing expenditures are necessary – and in fact, required, once the foundational marketing base is laid.

But, back to the point – the hidden secret about marketing and what the people in the smaller group know that others may not is this; Rarely will any typical marketing initiatives produce truly breakthrough results — and they can tie up a lot of money! What really sets up top and bottom-line breakthroughs is Foundational Marketing. Foundational Marketing is the stuff in the oval on the left. Foundational Marketing is inexpensive and the primary, required ingredient in every major success.

For any typical marketing expenditure to be productive, Foundational Marketing must be done well. In our experience, foundational marketing tools and techniques have produced remarkable results. For example:

  • A software firm earned 1,000 new clients in just a little more than two years
  • A fledgling medical product landed 150 hospital placements in its first two years, with some orders exceeding $1M. Prior to using Foundational Marketing techniques, this product was in only two hospitals, with the largest single order only $20,000.
  • An electronics firm achieved a 50%+ growth rate for six years straight
  • A components firm increased their win rate by 15% while investing 33% less quoting time
  • A wholesale distributor generated a 47% increase in regional sales in 1½ years

None of these breakthroughs required a significant investment in typical marketing.

To contrast the effectiveness of the two types of marketing even further, in one of those cases above, after the success had been achieved using Foundational Marketing techniques a new management team invested in a mid six-figure re-branding typical-marketing program that didn’t move the needle a bit – losing the discipline of Foundational Marketing along the way.

Why don’t more firms adhere to Foundational Marketing disciplines?

They don’t know what they are: B-school educators are fantastic at teaching principles and concepts, but in general, weak at delivering a practical approach to moving those principles and concepts into practice. I speak from experience as, at different times, both an MBA student and MBA-level university instructor. Concepts and principles education does not equate to skills, tools and process disciplines. Most B-school graduates do not come out newly-minted with a honed skill set and tool kit.

They haven’t developed a standard tool kit: You are more likely to find a dozen carpenters that use the same field-proven tools and processes for their trade, than a dozen top B-school graduates that use the same tool kit and process for strategy development. Coming to the job site, most marketing practitioners have to create their own tools and processes, convince the executive team to learn, trust and use them and support the execution discipline to see the resultant strategies through to success. Not to place all the blame on the practitioner, many firms simply haven’t developed a Foundational Marketing process and tool kit.

It’s tougher to do: Typical marketing programs are an easy way out – particularly if everyone in the industry is “doing something”. They can be delegated and the deliverables are easy to see: a new web site, a new logo, a bigger show booth.

They don’t have the discipline to do the Foundational work first: Unless the top-dog insists that Foundational Marketing receives first priority and is the right way to do marketing, it won’t get done. Foundational Marketing is a “think-before-doing” approach.

They think it takes too much time: Building a good foundation doesn’t take long if you have the right tools. We have witnessed strategic decisions made in a few days with execution and success in as little as 90 days.

They don’t believe in it because they’ve never seen it work: Using and trusting Foundational Marketing principles does take some faith and practice, but the track record is proven.

Under the Hood of Foundational Marketing:

Practicing Foundational Marketing is really not difficult if you have the right tools. Good and sound foundational marketing tools are based on empirical marketing science. Even non-marketing people can learn and succeed using them. In a way, a good Foundational Marketing tool is like a cell phone. You don’t need to be an electrical engineer with an understanding of electromagnetic field and communications theory to use a cell phone. All of that has been done for you and integrated into the cell phone. Good Foundational Marketing tools have already integrated sound empirical marketing science into them.

Success with Foundational Marketing does require – and this is the difficult part – transforming the way your organization thinks and the way your team executes marketing and sales. It really comes down to a battle of the mind – more than a battle of the wallet. When your organization understands Foundational Marketing – and begins to use its tools and techniques, both the probability of success and the return on investment of your marketing programs skyrocket.

A complete Foundational Marketing approach has four components:

· Market Strategy: A proven and steadfast way to decide what market segments to focus on and what differentiated position to carve out for your firm and each of its products.

· Business Development Initiatives: These are about how you will approach the segment(s) of the market you have decided to target. While components of tactical (typical marketing) are included, emphasis here is on specific customers to target, specific messages to communicate, the customer’s buying process, channel-to-market decisions and leveraging the intra-market customer-to-customer communication network in the target markets of choice.

· Sales Disciplines: There are two parts of the sales disciplines component of Foundational Marketing. Both require training and consistency. First, an effective, consistent sales process is a must – one which qualifies, discovers needs, proposes good solutions, and wins/sustains long-term clients. The second part is a differentiated sales story that is meaningful to customers – one which assures that your unique benefits story is told consistently through all channels to all target customers. It’s a story that emphasizes the economic, emotional and physical benefits in the right priority, for the right customers, in the right market. Sounds obvious, but many clients actually fail in these two fundamental requirements.

· A Performance Driven Culture: Think of the components of Foundational Marketing as the gears of an engine, the culture of a firm is the oil in the oil pan. (See the figure below). To consistently achieve your goals, the organization’s culture must encourage teams to communicate, execute, adjust, think, make decisions and lead in an honest way. A culture of performance excellence is defined by: accountability, clarity of expectations, measurements and metrics, ownership, open and honest communication, fact-oriented, sense of urgency, rewards and consequences, frequent checkpoints and the ability to quickly and constructively confront barriers and problems. With a culture of performance excellence lubricating Foundational Marketing, the engine hums. Without the oil of a culture of performance excellence, the gears seize.

Can Foundational Marketing fail?

Foundational Marketing programs do fail – for one of three reasons: First, if an organization does not have the discipline to execute and follow through, any program will fail. Foundational Marketing programs are no exception. Secondly, it is possible that some firms are too far gone to be saved by a Foundational Marketing program. However, in 20 years of consulting, we have witnessed only one firm in the second category. They required a complete change of their business model to survive. They did survive, but at a much lower revenue level.

Finally, we have witnessed firms that have relapsed. Relapse is characterized by success with Foundational Marketing, followed by a reversion back to sole dependence on those items in the typical marketing list. Relapse is very costly in money, time and lost opportunity. A relapse typically occurs when a new, uniformed marketing and sales or C-level executive enters the picture.

A Final Word:

A good example of the need for foundational discipline is in the weight loss arena. The basis of all weight loss programs is discipline: discipline to eat better, discipline to exercise more and discipline to adhere to a healthy lifestyle. The latest exercise machine does not obviate the need for discipline.

So it is with Foundational Marketing. Good tools and processes are needed – but organizational discipline fuels the best results. Foundational Marketing, supported by a culture of performance excellence has proven again and again to lower marketing and sales costs, increase market share, achieve more rapid adoption of new products and increase significantly the firm’s return on investment.

To learn more about Foundational Marketing call the QMP Group at 503.318.2696, email us at qmp1@qmpassociates.com or connect with us through our Contact Us page where you can detail your challenges.

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Revitalizing Stalled Sales

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As the economy continues to bounce along, (some say showing signs of a small movement off its bottom while others disagree), business owners and managers are getting impatient to find ways to boost revenue.  Not only are we seeing evidence of this within our own client base, but also our “Insights” blog post on “Diagnosing Stalled Sales”, published in June of 2011, has re-surfaced recently as the top-read posting on the all time QMP blog popularity-list.  The second most popular blog on that list is “The Marketing and Sales Audit”.  Business leaders are looking for revenue answers.  Standing idly by and waiting for the economic recovery is no longer a reasonable option.

As I re-read that “Diagnosing Stalled Sales” post, I realized that it was too diagnostic and not prescriptive enough.  After all, what good is a diagnosis without a treatment? Apologies to those readers who came away from that post less than satisfied. This post makes up for that shortcoming. 

Deciding What to Do

The first thing to recognize is that all revenue increases must come from one or more of the following four sources: 1) introducing new products, 2) stealing market share from competitors (new account wins in your current markets), 3) the natural momentum of your current markets or 4) penetrating new markets.

New Products:

If you have a new product-development initiative in the works, good for you.  But pursuing this option for increased revenue typically takes time and money.  Both are in short supply these days for small to mid-size businesses, exacerbated as our clients currently relate, by the challenge of tightened banking requirements.

New product development initiatives typically fall into one of three categories: a) improving what you already offer, b) meeting some new customer requirement or c) launching a breakthrough.

Meaningful overnight revenue upsides are rare from new products as it takes time to develop, tool, test and introduce a new product.  It then takes time for the market to become aware of it, understand it, change their old ways of doing things (and who they may be buying from) and begin to adopt your new product.  There are ways of accelerating this adoption rate, but only if the product is a breakthrough – something that fundamentally turns the market on its ear.  Even in that case, time is the challenge.  Twenty-five years into its existence, I still meet educated people who don’t own a personal computer, and it took 50 years for the automobile to be completely adopted by consumers.

Don’t get me wrong, new products are strategically important for a firm. I strongly encourage new product development, particularly if the product fills some need the customer didn’t even know they had – a real breakthrough.  Breakthrough products typically bring sustainable growth, give customers a meaningful reason to change and provide higher margins.  (More on this subject in a future blog post on the subject of Innovation).

So, keep developing; keep considering new ideas; just don’t expect the heavens to open and revenue to come raining down quickly.

Stealing Market Share from Competitors:

One of the fundamental principles of military strategy is, “The hardest ground to capture is the ground that is occupied. It typically takes anywhere from 3 to 6 times superior resources to take over a position from an occupier.  Interestingly, most of the initiatives that small to mid-size companies attempt (unwisely) to increase sales fall into this, the most challenging category.

These days, there are a number of popular marketing initiatives that are all the rage – search engine optimization, the use of AdWords, re-branding, social media and database marketing – to name a few.  These are not inherently bad or good.  However, the key to achieving significant growth with any of them is to assure their use in a focused way combined with growth options #1 (Introducing New Products) or #4 (Penetrating New Markets).  Using them in a focused way assures maximum return for minimum investment.

Some of you may decide that this option, stealing share from competitors, is the only one available to you and that you don’t have time and money for new product development or to try to penetrate a completely new market.  If you do, the road will be difficult and certainly take more resources and time than you anticipated.  If you can’t be dissuaded, here are some tips to make it easier:

a) Try to fragment your competitor’s market: Find and target sub-sets of customers that have a common dissatisfaction with the competitors’ offerings.  The Japanese didn’t attack the US auto market all at once on all fronts.  They focused first on the most vulnerable and receptive set of customers with a quality small car offering.  After establishing this foothold they expanded based on their proven quality reputation.

b) Tailor a market-specific benefits story to the customers in the specific target market fragment you wish to penetrate.  You may even wish to set up a separate website for that specific market. At minimum you will need a focused sales presentation.

c) Focus your sales team on that segment and train them to tell that market-specific story.  Make a concentrated effort for 90 days with frequent feedback from the sales team to see if the story is gaining traction.  The test of traction is a growing sales pipeline.

d) Never lead the penetration effort with pricing reductions.  You’ll hurt yourself.

The Natural Momentum of Your Markets:

This is the primary problem most small-to-midsized businesses are dealing with. It is true that all boats rise and fall with the tide.  That doesn’t mean that some boats don’t move around the bay faster than others, whatever the tide situation.  There are always segments of a market that trend opposite, or move faster than, the overall economy.  If the economic momentum of your primary target market has slowed, and doesn’t look like it will return quickly, then it’s time to consider growth option #4 – penetrating new markets.

Penetrating New Markets

The requirements for a successful penetration of a new market are: a) a good set of target market attractiveness assessment criteria, b) a high degree of focus in your attack on the market and c) rapid feedback and re-targeting process to use as required. You need not make a big, costly production of launching an initiative at a new target market.  Assessing attractiveness, focusing and gathering intelligence about receptivity (basically validating the market’s attractiveness) is not a big deal.

For each of the following questions, start with the phrase, “To what degree..” and score on a scale of 1 to 10.

… does this market exhibit sustainable economic, demographic or regulatory momentum?

… do customers in this market have a compelling problem that can be solved by our product?

… does our product offer a clear competitive advantage in solving that problem for the customer?

… does solving that problem reap a meaningful reward for the customer – economically, emotionally or physically

… is there a competitive leadership position available in the market?

… can we easily reach customers in this market?

… is there strong intra-market communication between peers in this market?

… can we sell into this market profitably?

These criteria will provide a starting point for a relative attractiveness assessment. You may wish to use more, or different, criteria.

Doing it:

It is common in slow economic times for sales teams to increase their activity in trying to sell to a wider range of prospects, try to penetrate large accounts that competitors own, campaign for price concessions to win new business and chase opportunities that are a marginal match for the firm’s capabilities.  As driven by the survival instinct as these activities may be and as resourceful as they may appear on the surface, they are typically non-productive.  In fact, they can be hugely counter-productive.  The results of such efforts are typically depressed profitability, unsustainable success and trapping the firm into businesses and/or products it cannot maintain.  Such activities can also dilute customer support resources, jerk around product development and operations resources, damage the firm’s quality reputation, start price-wars and cause a distraction of the business from what it does best.  It can take many years to recover from the negative consequences of impulsive sales actions taken in the fever and panic of an economic crisis.

I state the case in a dire scenario because the real key to success is focus and feedback.  Focus means staying focused on the target market you decided upon using the criteria above.  Feedback means monitoring progress, receptivity and success frequently and adjusting quickly.

The discipline of a limited number (one or two) highly focused initiatives targeted at specific new markets, followed by rapid sales feedback, has consistently produced good results.  When followed-through with discipline the results have been significant.  Our subject firms have won new clients, avoided price competition, found new ways to provide additional value to customers, increased selling prices, reduced the hysteria associated with trying to respond to every quote that comes within 100 yards of the door, achieved double-digit increases in win rates and made rapid strategic adjustments that saved them from economic disasters.

The approach we suggest requires the adoption of three basic process disciplines: 1) rapid market assessment, 2) rapid and focused launch initiatives and 3) disciplined and frequent field sales feedback.  While these disciplines may be different than what your organization has used in the past, they are easy to learn, cost-effective to deploy and yield a higher probability of success – in both challenging and healthy economic times.

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We invite you to read our related blog posts “Diagnosing Stalled Sales” and “Finding New Markets“

Don’t Give Up on the Top Line (no matter how tough things get)

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The Most Common Reaction to Economic Turmoil: Expense Reduction

There’s a line in the Willie Nelson tune “Nothing I can do about it now” that goes like this:

I’ve survived every situation
Knowin’ when to freeze and when to run.

Two years into the current economic downturn, there is plenty of evidence that companies are trying to do both. Firms continue to take aggressive steps in reaction to reduced demand. Cisco just announced layoffs of 6,500 employees. Other big name firms such as Merck, Lockheed and Boston Scientific also announced staff reductions.  Borders finally threw in the towel, closing its last 400+ stores.  It once had 1,200 outlets, employing more than 35,000.  And most recently, HSBC indicated it will let go between 25,000 and 30,000 employees.iStock_000009708062XSmall

Small to mid-sized company layoffs typically don’t make a lot of news. But a quick informal survey at the other end of the corporate spectrum, showed that smaller firms, particularly those without an international earnings contribution to their performance, have experienced a down-turn in revenues of anywhere from 25% to 40% from their peaks in 2007 and 2008. They’ve aggressively cut expenses and conducted layoffs as well.

Of course, there are exceptions. Companies with specialized innovations targeted at niche market problems are doing much better than firms depending only on their traditional products and markets. But by-and-large, corporate “economic adjustment” initiatives focus on operational expense reductions.

Instability in Europe continues, the DOW is down more than 1,500 points since July 1, unemployment and underemployment in the U.S. remain high, Asian demand for US exports will decline as a reflection of reduced US demand for their imports, and the US Congress is mired in finger-pointing politics vis-à-vis problem solving. Under these economic conditions, can you blame anyone for immediately reaching in the first aid kit for the expense reduction tourniquet?

Taking a Second Look at Revenue Upside Options:

Stemming the bleeding is crucial under these economic conditions. However, in the frenzy to cut expenses, the potential for revenue upsides gets short shrift. Why? Expense reductions can be swift and easily seen in reduced cash outlays. Revenue upside strategies, on the other hand, even in good times, carry with them risk. Financial executives and conservative CEOs will opt, almost every time, for the less risky, faster impact, sure thing. Revenue-upside options fall to the side of the road.

Nonetheless, there are a handful of strategies for realizing revenue upside in a down economy. Due diligence and responsible managerial behavior should compel managers in serious economic times like these to, at least consider the revenue-upside options that follow. An impulsive, headlong rush into any one of them would simply be unwise. Rather, we suggest a serious vetting exercise, followed by execution of the best.

Upside Potential #1: Market Focus

Focus is typically rejected, out of hand in tough times. When the business is hurting why would anyone in their right mind “narrow” their focus? Shouldn’t we be casting the net further?

Not necessarily.

Spending time to reconsider the market segmentation of your customer base and the unique conditions extant in each of those segments helps you identify areas that might benefit from additional focus and re-deployed resources.

Not all the market segments served by your business are affected equally by the economic winds. Not all market segments have adopted your products and services to the same degree. Not all market segments are afflicted with the same competitive infestation. And most importantly, not all segments of the market receive the same economic value from your product offering.

For example: Let’s say that, in general, customers in a particular market segment garner a 10X economic benefit from your product in a relatively short time frame. That is, the economic return on what they buy from you is 10 times more than they paid. In other segments, the return may be less. It is more likely that focusing additional effort in the market for which your product yields the highest return to the customer would have a higher probability of success than expenditures in other areas where that return is less.

In contrast, broad-brush marketing initiatives intended to expand a firm’s reach are less efficient because they: a) dilute resources, b) dilute the economic return differentiation of your brand, c) begin to encompass more competition in each new segment and d) don’t adequately leverage your greatest successes. Focus is likely to be more effective and profitable.

Upside Potential #2: Pricing

This alternative has two options: 1) holding prices and 2) increasing prices

Holding Prices: The competitive nature of tough economic times inevitably presents opportunities for price cutting, particularly as a means to close hotly-contested deals. The reasons for this are many. First, weak, undifferentiated competitors are starting price wars. Secondly it’s the easiest option for the sales person and requires the least amount of sales effort. Third, it typically doesn’t make much of an impact on sales commissions, unless the commission is tied directly to the profit margin of a deal. Fourth, sales people are not trained or disciplined enough to sell on value. Fifth, in tough times customers (particularly purchasing managers) know they can request price concessions and “work” one vendor against another. Finally, owners and managers frequently don’t have enough good first-hand information or a well-enough established relationship with the key customer decision-makers to mitigate price discussions.

The truth is, allowing price cutting, even in tough economic times, is really an admission of several foundational weaknesses. The product is may not be providing a differentiated economic value to the customer (wrong target customer). Management may be out of touch with customer decision makers. The strategic market segment focus is one that has too much competition. Or managers don’t understand how to direct their sales team on how to avoid price-based competition.

In a mini-workshop, I asked CEOs of small to mid-sized B2B firms to imagine their best product being purchased and used by their best customer. I then asked them to pencil out what they thought the 3 year economic impact would be on their customer – that impact being the amount of profit their product would drop to the customer’s bottom line. For example, if their product was of very high quality, what would the economic impact be to the customer for purchasing the high quality product vs. a lower quality product from one of their competitors?

In this 15-minute exercise, not one CEO was able to arrive at an answer. If the CEO can’t describe it, how can they expect their sales people to? If the sales people can’t explain it, how can price-based competition be avoided?

Raising Prices: A number of years ago we were working with a client whose new product adoption was stalled, gaining virtually no traction in the marketplace no matter their continuing effort to increase distribution agreements. It was priced 3X higher than the most popular competitive approach. Of course, the sales people thought their job was futile and continually pleaded for significant price reductions.

A brief assessment showed that a certain portion of the tiny installed base went to a segment of the market whose needs were unique. Only this product could meet those needs, for a myriad of reasons. (Interestingly, initially the market had found my client, not the other way around.)

Rather than reduce prices we suggested the business refocus their efforts to this one segment, highlighting to potential customers the unique fit and match of the product to their unique needs. After focus and redeployment of time, money and energy (no increases), adoption took off, with no accompanying price reduction.

Now some people would call this just another version of Revenue-Upside, Option #1 – Market Focus. That’s largely true. However, the rest of the story is that while focused and penetrating this particular segment, customers began to request additional features and functions – which in turn led to increased selling prices. In the end, the average price point rose to 4X its original. (Remember, the original was 3X the competitive approach).

At no time was there a need for a price reduction and the business turned completely around, growing much faster than anyone had anticipated. By focusing on market segments where the economic value and unique characteristics of your products are understood, the opportunity exists for improved performance products at increased prices.

Upside Potential #3: Fragmenting Offerings

Sometimes fragmenting your offering into more affordable pieces makes it more digestible for clients. Increased revenue accrues when decisions that otherwise would have been delayed can be made with smaller financial commitment by the customer. This provides your firm at least a small amount of revenue vs. none. It also sets the groundwork for follow-on purchases.

When fragmenting your offering, selling prices of the fragmented pieces need to be set so that the sum of all the pieces of the fragmented offering sum up to more than what would be charged were the product/service sold all at once. Is this “sum-of-the-parts pricing” gouging? No. The costs of doing business associated with the planning, coordination, administrative management and handling of multiple orders justifies the increased pricing – and you can be honest with customers about that price penalty. They understand that it costs more to do business that way and might even be encouraged to buy larger chunks to avoid paying that premium.

Depending on the type of product or service, fragments or phases might be identified as any on the following list: planning, design, testing, tooling, manufacturing, test, integration, set-up, training, service and/or recycling. The bottom line is that fragmenting your offerings should make it easier for customers to buy something rather than not buying a more costly nothing.

Upside Potential #4: Adding Services to Product Lines

Have you noticed that, these days, nearly every durable-good purchase comes with an offer to buy a replacement or service contract? Last week I bought a 16GB PC thumb-drive for $27.99. The checkout clerk asked if I wanted to buy the replacement warranty. I declined, but certain types of renewable service warranties can be very profitable add-ons.

Upside Potential #5: Acquisition or Licensing

Opportunity to acquire businesses and intellectual property during major economic downturns increase as companies struggle and values are depressed. However, as with any acquisition at any time, there is reason to be cautious.

Buying a competitor’s business to capture their customer base (barring SEC denial) is not necessarily a coup, even at a bargain price. Your competitor’s customers may be receiving a technologically obsolete, poor quality or functionally inferior solution. In such a circumstance, you would be wiser to boost investment in your own product development effort vis-à-vis buying your competitor.

Opportunities for acquiring intellectual property may arise more frequently in tough economic times as well, as challenged companies look to find sources of cash. Turning IP (purchased or licensed) into products and then into cash, however, doesn’t typically happen quickly. A better way to ensure a speedy IP-to-cash transition is to acquire IP that can be integrated quickly into your current product offerings, increasing their functionality, their value to the customer and their selling price.

Just Don’t Do Something, Sit There! Think!

In most businesses the ratio of execution-driven people to strategic-thinking people is low. Of the two roads to survival in a downturn, expense reduction and top-line, the expense reduction road is best travelled by the tactically driven, the top-line by the strategy-minded.

The strategy-minded are often those at the top of the organizational pyramid. So, it’s only self-discipline and personal values that will compel people at the top to consider revenue upside.

George C Scott in the movie Patton said this to his troops.

“I don’t ever want to hear we’re holding anything. We are advancing all the time.”

Be brave. Seriously consider the revenue-upside options in the face of adversity.

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Learn more about the QMP Marketing and Sales Engine and how it can revitalize both top and bottom-line growth

The Big Deal: Sorting Fact from Fiction in the Sales Pipeline

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The Big Deal

Every sales manager, business owner, general manager and CFO, at some point in their careers, have been entertained by the overly-enthusiastic sales person describing the “Big Deal” that was about to close. And unless those managers were completely naïve and inexperienced, a twinge of skepticism should have arisen. Was what they were hearing, in fact, real?

When hearing about a “Big Deal”, managers must confront the challenge of what to do about it – ignore it, or prepare. Preparation may comprise some or all of capacity planning, inventory commitment, equipment capacity increases, cash planning and workforce planning. Failure to anticipate these factors can result in an inability to deliver to the customer what they want, on time, should the deal actually break. On the other hand, a knee-jerk financial commitment based on the potential of the deal, can leave the firm with a lot of unusable inventory should the deal fail to materialize.

So, how does a manager judge the reality of the “Big Deal”?Contemplative Businessman

Here’s an old joke that serves as a guideline for the most skeptical.

Question: How do you know when a sales person is exaggerating?

Answer: His lips are moving.

While this approach may appear easy, it is not dependable. There is a better way to sort through the reality of the “Big Deal”.

 

Ask Six Basic Questions:

The likelihood of closing a “Big Deal’ can be assessed by answering six basic questions. As you answer these questions, keep in mind is that the answers to the first five are only valid from the customer’s perspective.

 

Question 1: Compelling Need

To what degree is the prospective customer confronted with a real, compelling problem or challenge that needs to be addressed quickly or can the customer do nothing?

Research has shown that between 30% to 50% of all opportunities in a sales person’s pipeline never actually close. The customer simply never buys anything. These are called “No-Decision” outcomes.  The sales person seems to be the only one convinced that there is a customer compelling need that will result in a buy. No matter how convinced your sales person may be that the customer has a need, the only opinion that counts is the customer’s.

To further pursue this line of inquiry, you might continue by asking: Is there a deadline by which the customer problem must be fixed? Is there a significant economic penalty, safety consideration or other obvious consequence if the customer problem isn’t fixed? Another revealing question is, “Can the customer do nothing?” Or, “What is the economic or other consequence to the customer of doing nothing?”

The lack of a compelling need, leads to the large number of “no Decisions” in a sales persons pipeline.

 

Question 2: Economic Benefit

To what degree is there a significant economic benefit to the customer if the problem / challenge is resolved or the need filled?

Businesses, too often evaluate the economic value of a sales opportunity only from their own perspective. How much revenue or commissions will it bring to us? While this is a good way to evaluate attractiveness in terms of the bottom line, how much money your firm can make is completely irrelevant to the likelihood of the deal closing. In most business-to-business environments, decisions to buy are made by customers based only on the degree to which “they” believe that “they” will make money. In other words, there must be a significant economic benefit in their favor, well beyond the cost of purchasing your product or service, for the deal to close. The economic balance must be disproportionate in favor of the customer. This is the basis or all ROI.

 

Question 3: Match

To what degree do your capabilities (products and services), precisely and completely meet the needs of the customer?

As convinced as you may be that you have a significantly well matched solution which solves every dimension of their challenge, you only score closing points if the customer believes it.

 

Question 4: Competitive Position

To what degree does the customer believe your solution is the best of all the alternatives available?

While a number of competitors may provide a reasonable match to the problem or need, all alternatives are rarely equal. Let me repeat for emphasis. Convinced as you may be that you have a significantly advantaged solution, you only score points if the customer believes it with the same conviction. And unless you can translate that differentiated position into a differentiated economic benefit to the customer, you miss a great opportunity to solidify your advantage in the customer’s eyes.

 

Question 5: Champion

To what degree do you have a high-level, influential and authoritative decision maker believing your solution is best?

A “Champion” is a person in the customer organization that likes your solution, believes it is in the best interest of their company to select it, wants it to win and is working toward that end. All Champions are not equal. The only Champions that really count are those with the highest composite score on three dimensions: Influence, Power and Affinity.

Influence is the degree to which they can influence a decision. The degree of influence may arise from technical expertise, seniority, family influence, organizational rank or some other source. Authority is the degree to which they can unilaterally make the decision and Affinity is the degree to which they are attracted to your solution.

Champions that are likeable, who like you, and are always willing to have lunch with you, are not “real” Champions unless they score high on the Influence-Power-Affinity scales.

 

Question 6: Leverage:

To what degree does winning this opportunity bring additional benefit to your company?

This is the only one of the six criteria that; a) doesn’t increase (or decrease) the credibility of the opportunity and b) is only important from your perspective, not the customer’s.

Leverage may exist in several forms: straight out earnings, a new first-time market capability, a first-win at a new account or a technological breakthrough that can be leveraged to other customers.

Even though it’s not customer-centric this factor is good to evaluate, so you can assess the benefit of concentrating and/or redeploying assets to winning this “Big Deal”

 

Getting to Reality:

The word confrontation can have a bad connotation, but for purposes of analyzing the “Big Deal”, let’s agree that confrontation simply means getting to the reality of it in a respectful, yet determined, way.

Some managers find it difficult to confront a sales person about the reality of a “Big Deal”, particularly when others are in the room. Presumably this is out of respect, to avoid the embarrassment of seeming confrontational, or to avoid appearing not to trust an employee. One way or another, these emotional barriers to assessing reality need to be overcome.

A highly respected local CEO was participating in panel on Performance Management recently. He was asked how he avoided hesitating and how he handled the discomfort associated with confronting these and other kinds of important issues. His response, “I was always more afraid of the consequences of not confronting the issues.”

There’s typically a lot riding on a “Big Deal”. The six areas of inquiry listed above will help you and your organization stay focused, concentrate where the opportunity is truly best and allocate scarce resources appropriately.

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Learn more about the QMP sales process for accurately qualifying and closing sales opportunities.