Tag Archives: Market Viability

Creating Market Pull

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“Market Pull results in higher marketing and sales ROI than Market Push and makes everyone’s life a lot easier.  Ask B2B business owners which they would prefer, and you’re unlikely to find anyone that wouldn’t prefer to have customers lined up at the door asking to buy their products than having to coax them out of the brush to engage.”
 

Market Push

Market Push is exactly what it sounds like – aggressively pushing and promoting of your product to any and all that will listen.  After all, customers can’t buy your products if they don’t know they exist.  So, marketing must become obsessed with “getting your name out there”.

Right?

Well, not really.  That obsession makes Market Push programs expensive and many times ineffective.

An all-out “get-our-name-out-there” initiative can lead a B2B marketing team to commit a lot of cash, time and energy to a scattered range of unfocused activities: a new branding program, a revamped website, new logo and newly-minted tag line, a blitzkrieg of trade shows, radio ads, an SEO initiative, a blast of pop-up on-line advertising or an aggressive social media program.

Source: Douglas Wray on Instagram, via Daring Fireball

I have seen firms spend in excess of 7 figures on Market Push programs with virtually no measurable results.

It’s a fall back, non-strategic shotgun approach.  And, even if it works a bit, it typically generates a widely diverse range of customers.  The consequences are that the firm doesn’t know where to focus next.  They will likely be pulled in many directions by different special interests within this new, wide customer base.  They cannot decide how to evolve their product offering road-map or what specific message to promote to whom.  Debate can get heated.  Spread too thin, they can become vulnerable to more focused competitive initiatives.

There is a much better way.

 

Create Market Pull

Now, contrast Market Push with the phenomenon of Market Pull.

After initially trying and failing with a Market Push program, a B2B client shifted to a focused Market Pull program and grew their customer base by three orders of magnitude in just under three years.  The initial impact of the switch was seen in less than 120 days.  Another customer hit two orders of magnitude in six years.

The question is this:  How does one create market pull of these magnitudes?  The compound answer may seem counter-intuitive, at first look.

It’s: Focus and Leverage

 

Market Focus: Tapping into the Natural Leverage of the Market Ecosystem

Each target market is a community.  Each community has a natural architecture. We call this target market architecture the Target Market Ecosystem or TME.  While all TME architectures are virtually the same in basic structure, (see below), each is unique in what’s inside the nodes.

 

Creating market pull is about building a reputation for delivering outstanding value to Economic Decision Makers in a specific target market ecosystem, then fanning the flames of the communication of that value proposition between peers, referral sources and through the other network nodes.

Within any TME, the ultimate goal is reaching Economic Decision Makers with your compelling value proposition.

For economically impactful purchases in the B2B world, Economic Decision Makers commonly look to knowledgeable, experienced people they trust within the market ecosystem for advice and recommendations.  Filling those advisor roles are peers, technical specialists, lawyers, accountants, consultants and Board Members.  We classify this group of advisors as Key Referral Sources.

Within that same TME community, there are also Opinion Leaders – those few knowledgeable folks who seem to always be at the front edge of new ideas.  They might not hold a direct, open communication line to the Economic Decision Maker, nonetheless, they typically have significant indirect influence on them through their Key Referral Sources.

The most impactful Opinion Leaders are characterized by four traits.

  1. They are Fanatic Believers in your value proposition
  2. They are Well-Networked within the target market ecosystem
  3. They have High Credibility with Key Referral Sources and Economic Decision Makers
  4. They are Natural Sales People, anxious to communicate what they know and believe, to all willing to listen.

Also within this community infrastructure are a couple of non-people nodes – Venues and Vehicles.  Venues are the real and virtual places where people in this ecosystem meet and dialogue: society meetings, trade shows, on-line groups, peer-groups, conferences, industry events and seminars.

Vehicles are the means through which people discover new information: webinars, blogs, podcasts, talks, videos, articles, industry journals and whitepapers.

The arrows in the ecosystem diagram, represent the directions of influence of each node.

 

It’s A Universal Dynamic

The social influence dynamics of a target market ecosystem are at work for everything bought by anyone.  Its ubiquitous existence was clearly demonstrated in social research compiled by Professor Everett M. Rogers in his book “The Diffusion of Innovations” (Free Press, 1995).  From community adoption of health practices in villages in the Andes, to the fan-out of new techniques for educating children in math in Pittsburg, to the adoption of high-tech products, the TME is the engine that drives adoption.

 

It’s Underlying Structure is Ubiquitous

The market ecosystem architecture for Hospitals is the same structure as that for Fire Departments – and every other industry.  Yet, each individual TME is, for the most part, self-contained. Within it swirls the internal dynamics of market-specific issues, market-specific peer-to-peer communications, influencers, opinion leaders, venues, and industry journals spouting their own unique industry lexicon.

This insular characteristic means the Director of a Hospital, is not likely to hang out with, or seek the advice of, the Chief of the Boston Fire Department regarding how to select computer monitors for their delivery rooms.  She will most likely, ask a peer at another hospital or a hospital IT specialist first.

 

Leverage: Kick-Starting Your Value Proposition Communication Multiplier (VPCM)

Your VPCM is the fuel that powers growth in a TME.

Social science research shows that “node-based”, intra-community communications is 13 times more effective than mass media in getting a value proposition message to go viral within a TME.

Having one of your happiest customers communicate the exceptional value delivered by your approach to solving their problem in a venue talk to 25 or more of her peers is an example of your Value Proposition Communication Multiplier (VPCM) in action.

The VPCM is most powerful within an ecosystem and, occasionally can even jump from one ecosystem to another.  It drives market pull and sells for you when you are not in the room.

Opinion Leaders are important communication and influence nodes.  One Opinion Leader can influence dozens, or even hundreds of Economic Buyers or Referral Sources in a specific TME.

Key Referral Sources are influence and communication nodes for your VPCM.

Venues and Vehicles are also VPCM communication and influence nodes.

 

“Strategically injecting an ecosystem-validated value proposition message at the right communication nodes is the key to creating market pull.”

What You Can Do Immediately

Here are three actions to create market pull in your corner of B2B world.

1. Focus

Select a target market where your value proposition has been validated to deliver higher economic value to customers than any other segment.  Be sure the market has some economic momentum, lots of customers with a common problem your offering fixes and a well-established, easily identifiable TME.

2. Map that Market’s Ecosystem

Identify the Economic Decision Makers by title, Key Referral Sources by the same, Opinion Leaders, Venues and Vehicles.

3. Target your value proposition story at communication nodes within the TME

Build your story and marketing plan around your proven, delivered value proposition in that specific sector.  Then proceed to place that message through blogs, articles, talks, referrals and presentations at the Nodes of the TME to get the natural lift that each TME offers.

Don’t get antsy. If you do it right, and your value proposition is real, then you should begin to see results in no more than 160 days.  If you don’t see results something is amiss – and whatever it is, it’s not anything that could be fixed with an expensive Market Push Program.

*****

Jerry Vieira, CMC is the President & Founder of Jerry@qmpassociates.com.  Read more about Jerry on LinkedIn and follow him on Twitter at @JerryatQMP

 

Overcoming the Fear of Market Focus

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“Not every customer receives the same level of value from your product or service.  It makes sense that those who receive the greatest value are more likely to buy it, pay more for it, be happier with it, tell others like themselves about it and return when they need more. So, if you’re launching a new product, why not start there?”

 

I love this photo. It precisely captures the reaction of many clients struggling with stalled sales when they first hear the suggestion that a narrower market focus might be the best way to overcome their problem.

Their faces, and sometime their mouths, say, “Are you nuts!? We don’t have enough business now, and you want us to NARROW our efforts? We should be EXPANDING, not focusing.”

The truth is, many times broadening a company’s marketing and sales efforts is not the best cure for a stalled-sales situation.

Focus is.

The “Everybody Can Use It” Fallacy: The Emotional Fuel Driving the Desire to Expand vs. Focus

Quite often when I ask clients who their product is targeted to, they reply with a vague, “Well, just about everyone can use it”. The false corollary is then, “So, we ought to make everyone aware of it and try to sell it to anyone and everyone. Right?”

No, not really.

Why?

Because not everyone receives the same level of value from your product – and it makes sense that those who receive the greatest value are more likely to buy it, pay more for it, be happier with it, tell others like them about it and return when they need more.

So, while there may be some truth in the statement “Everyone can use it”, it doesn’t mean that you will be successful selling to everyone. You will be most successful, and get the greatest lift, from those segments in which the value proposition has the highest significance.

So why not focus on those high-value-received markets first, reduce your wasted energy and money and increase your success rate?

How do you focus like that? And what’s the risk?

First, pick the best market to focus on.

That market must have the following attractiveness characteristics for it to be worthy of your focus:

  • economic momentum,
  • a common problem that you can fix with your offering,
  • lots of people with that or a similar problem that haven’t solved it yet,
  • a strong economic (or other) benefit that accrues to the customer from fixing that problem,
  • a lot of peer customers they can tell about it, and
  • a well-developed peer-to-peer communications network

For new or innovative products, it is important to have a real customer to which you have already delivered that incredible value – a verifiable case study, testimonial and reference account.

Sometimes it only takes one or two.

I was once asked to help a Product Manager that had refused to focus and whose product’s sales were so bad it was about to be shut down. She spent all of her time increasing distributors across the country – because, “everyone could use it”.

With just a little customer analysis we found just two current customers within one market, that had, unbeknownst to the manager, received enormous benefit from the product – and with just a few phone calls and visits confirmed that the market they represented had all the characteristics of attractiveness discussed above.

We refocused efforts by tailoring the story for that market, reduced spending, increased sales focus and greatly increased penetration as a result. The largest single order from that market prior to focus was $20,000. After focus, within a year, the largest single order was over a million $. In addition, the number of large customers in that segment purchasing product went from just the original 2 to over 150. Finally, the average selling prices increased by anywhere from 2 to 4X, as customers in that market requested further market-specific product features.

This is only one of a number of similar situations in our archives.

Won’t We Miss a Lot by Focusing?

Focus just means your primary effort, targeting, messaging and resource allocations are aimed and tailored to your highest-value-received segment of the market. It does not mean you ignore other customers that unexpectedly come knocking. It just means that your primary attention is elsewhere.

So, service well the customers from outside your primary focus that unexpectedly arrive at your doorstep. Just don’t get too distracted by them. But, quickly analyze why they bought. A few may well represent yet another high-value-received segment to approach after you have developed a strong and comfortably defensible foothold in the first.

You must constantly be on the lookout for what Peter Drucker has called “The Unexpected Success”. An unexpected success is a customer buying your product from some crazy, unexpected market that seems, well, weird.

No, I am not talking about Portland, rather from a market segment that you can’t imagine why in the world they bought.  As weird as it may appear at first, it could be an early indicator of high value received.

Constant vigilance will assure you don’t miss something big by focusing.

*****

 

Jerry Vieira, CMC is a Certified Management Consultant and President & Founder of the QMP Group.  QMP is a Portland-based management consulting firm specializing in market strategy, marketing & sales organizational transformations and training & coaching. Read more about Jerry on LinkedIn and follow on Twitter at @JerryatQMP

Selecting the Best Market Strategy

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Strategy (noun): “A plan of action intended to accomplish a specific goal”

The 33 Strategies:

 

Robert Greene wrote a great book about military strategy entitled “The 33 Strategies of War” (Viking Press). Fascinating reading. In it, Greene analyzes the 33 strategies in great detail, citing numerous historical examples over the course of history from the ancient Greeks to the 21st century.

Along with the more well know strategies like “The Divide and Conquer Strategy”, several had intriguing titles, like: “The Guerilla War-of-the-Mind Strategy”, “The Controlled Chaos Strategy”, “The Strategy of the Void”, “The Death Ground Strategy” (not my favorite) and the “Ripening for the Sickle Strategy” .

Small-to-midsize business could learn a lot from that book.

But, with 33 strategies to choose from, few executive teams are able to dedicate the time and resource necessary to gather and analyze enough field intelligence, and then grind through the decision making and selection process, to pick the precise best strategy to execute. More typically the strategic planning process is done in a short time window each year, commonly facilitated by a non-strategic expert.

 

The six basic strategy alternatives – 3 F’s and 3 D’s:

 

Barring the existence of a proven tool or affordable expert to assist small to midsize firms in the selection of the best of “The 33” strategies, we suggest 6 basic strategic alternatives that executives might find easier to understand and select from.

 

The Frontal Assault Strategy:

 

A frontal strategy is a tempting, and typically, poorly thought out alternative that is too common in business. It is, many times, the default strategy. It can be paraphrased as, “Here is our product. It’s the best. Go out and sell it.”

New companies often have that strategy, and inventors and entrepreneurs are notorious for it when they say, in one form or another, “Everyone can use this”.

Frontal assaults typically fail.

Examples of famous failed frontal assaults in business were IBM in their assault on the PC market, Coca-Cola with their New Coke debacle and Segway with their assault on the personal transportation market. As an aside, neither Coke nor IBM’s powerful brand recognition helped them avoid failure.

Notable military frontal assault failures were Pickett’s charge at the Battle of Gettysburg during the U.S. Civil War, Napoleon’s assault on Russia in 1812 and Hitler’s assault on Russia (Operation Barbarossa) in 1941. Even Napoleon’s and Hitler’s huge, powerful and highly capable armies could not overcome the fallacy of the frontal assault on Russia with its immense land mass, winter weather and dedicated and committed army.

Frontal assaults are extremely costly, and research suggests that it takes anywhere between and 3 to 5 times the resources of the enemy (competition) is required to overcome a defended position in business or war.

 

The Fragmentation Strategy:

 

Fragmentation in business is the same as segmentation. Fragmentation allows a firm to focus their energy and their value proposition in a much narrower arena, increasing significantly their ability to develop a meaningful value proposition and establish a defensible foothold. Both development and marketing expenses are reduced and the outcome of product design focus is typically a much more relevant value proposition for the market, which ultimately makes selling easier.

 

The Flanking Strategy:

 

Flanking, in military terms, is differentiation in business terms. Differentiation allows firms to create a unique brand presence in the mind of the customer.

Flanking and Fragmentation go hand in hand.

 

The Defend Strategy:

 

Just as a frontal assault requires 3 to 5 times more resource to succeed, a defend strategy requires 3 to 5 times less resource to succeed. In business, overcoming a defended position is challenging for many reasons; the defender’s customer relationships and channel are already established, their brand name is already known, their customers’ buying processes and contracts are already established and all the support and service mechanics are in place. That’s a lot of bonds for the attacking competitor to break.

On the other hand, the defend strategy is extremely vulnerable to a Fragment and Flank strategy.

The best example I can think of is the Japanese success in the US auto industry. The Big 3 (GM, Ford and Chrysler) had become complacent in their market share. Together they owned 90% of the US auto market. GM had the highest share at roughly 50%.

The Japanese fragmented out and targeted the small car market where the US automakers had a poorly defended position, and quite frankly, had little interest in defending. Small cars simply didn’t contribute enough margin to the Big 3’s bottom line.

The demographics of the times (baby boomer new-household growth) were promising, as was the economic value proposition of the small 2nd car. Fragmenting and Flanking, based on quality and economics, were all that was required. GM now has roughly 20% market share.

That foothold was the first in a series of sequential fragment and flanking moves that took the Asian automakers from economy compact cars to luxury sedans and SUVs.

 

The Depart Strategy:

 

Sometimes it’s simply better to decide not to fight. Also called the “Cut-Your-Losses” strategy, it is better labeled as the “Reallocate-Your-Resources-to-a-More-Lucrative –Market-Opportunity” strategy. That more lucrative alternative would likely be a fragment and flank opportunity.

The Depart strategy comprises overlooking the battle field and simply deciding not to engage at all. The biggest enemy to overcome in accepting the wisdom of this strategy is pride. Executives must allow reason to triumph. The depart strategy is best utilized when it becomes apparent, that the enemy is well dug in, having a strong defensible position.

 

The Develop Strategy:

 

The Develop strategy is the common follow on to the Depart strategy. If the market opportunity is judged intuitively attractive, but temporarily impenetrable, after departing the field the develop strategy suggests that you remain engaged through intelligence gathering, looking for just the right opportunity to find a poorly defended fragment of the competitor’s market to attack.

 

The Best Strategy:

The point of all this that the only strategy that produces consistently good results is the combined Fragment-Flank strategy aka Market Focus and Differentiation. Whether your products and markets are mature or new, Fragment and Flank, or Segmentation and Differentiation is key.

*****

Copyright Jerry Vieira, CMC and The QMP Group, Inc. 2014 All Rights Reserved

For more information about formulating winning market strategies contact Jerry Vieira, CMC at Jerry@qmpassociates.com , call to 503.318.2696 or visit the QMP Website at www.TheQMPGroup.com  or connect with us through our Contact Us page.

6 Targets for Applying Lean in Marketing & Sales

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Boosting Customer Received Value Through Lean

In our previous blog post, “3 Guiding Principles for the Application of Lean in Marketing & Sales”, we offered a trio of overriding Lean commandments. In this post, we point to specific Marketing & Sales targets for Lean that will simultaneously increase customer received value and marketing and sales ROI.

Target #1: Lean Applied to Market Focus

Face the facts. Your product or service offerings do not deliver the same economic, emotional, political or physical value to all market segments equally. Lean means focusing your products on market segments where the total value received by customers is its highest. If that situation exists, the Law of Economic Value is satisfied.

The Law of Economic Value states:

“All economic value accruing to your firm has as its source, the customer’s perception that they will receive more economic, emotional, political or physical value from your product or service, than it costs them economically, emotionally, politically or physically to acquire and use.” ©

Research shows that the following benefits accrue to a firm if the Law of Economic Value is fulfilled:

  • the ability to garner price premiums
  • faster market penetration
  • higher customer satisfaction
  • more market peer-to-peer 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 and sales expense
  • improved sales win rate and faster time to close
  • reduced product design costs and a clearer product evolution path
  • greater returns from focused on line marketing investments

Market Focus is Lean in Action.

Target #2: Lean Applied to Product Requirements

Feature creep is the antithesis of Lean. It can be particularly nefarious in high tech firms where brilliant and creative engineers, encouraged and abetted by marketing and sales folks, attempt to stuff all the capabilities they can into a product to make sales as easy as possible.

The truth is, feature-stuffing typically causes delays in new product launches, ingrains price and profitability pressures in the product and results in a general market positioning of “everything to everyone in just one package”. Everything-to-everyone products inevitably lose market share to focused, niche offerings.

Focused Product Requirements are Lean in Action.

Target #3: Lean Applied to Marketing 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 budget arena. They believe that more marketing dollars across more expansive markets means more customers. Not so.

Research shows that communications of a new idea is best accomplished through peer-to-peer opinion leaders in a specific target market. That research revealed that peer-to-peer communication is 13 times more effectively than mass communication. Focused marketing communications programs that reach those opinion leaders, supported by value propositions achieved through market-focused product design, is the most economically productive combination that can be achieved.

Focused marketing communications is Lean in action.

Target #4: Lean Applied to Channel to Market

Your market share will eventually erode if your channel-to-market provides value only to you and not your customers. Marketers must be vigilant to assure their channel delivers meaningful and relevant value to customers and clients first.

Marketers must also recognize that the customer value the channel must deliver changes with the maturity of the industry. In a fledgling market the channel may be required to supply training, installation, configuration and integration services. In a mature market, those expensive services must be replaced by the channel’s ability to quickly deliver spare parts or service.

Evolving Channel Value Delivered is Lean in Action

Target # 5: Lean Applied to the Sales Process

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 to notbuy anything. The sales person has, in effect, wasted time and money pursuing something that was destined to never result in a sale.

We suggest a set of 5 criteria that can improve a sales person’s ability to qualify an opportunity and save time.

  1. The intensity of the customer’s need or problem,
  2. The degree to which the customer believes your product can meet that need,
  3. The degree of the economic, emotional, political or physical value the customer will receive by buying the product or service,
  4. The customer’s perception of your product’s relative competitive advantages ,
  5. The existence of a customer champion for your solution

Good Sales Qualification Discipline is Lean in Action.

Target #6: Lean Applied to Market Intelligence Feedback

Sound strategy cannot be developed without current and accurate market intelligence. Rapid response to market intelligence feedback is critical to business success. That intelligence may comprise some or all: competitive moves, 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 of gathering this market intelligence. The sales team is the one company asset that is in the most frequent communication with customers.

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

  • Create a market intelligence section as part of your sales person’s weekly or monthly sales report or presentations
  • Train your sales people how to question, listen and observe when they are in front of a customer – not just spew the benefits of your product
  • include providing market intelligence in the sales compensation plan 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
  • Understand what pricing pressure means. Pricing is typically a symptom of a bigger strategic problem, centered on customer-perceived value. Make your actions value-delivery related, not pricing related.

Rapid Collection and Response to Market Intelligence is Lean in Action

Conclusion:

The application of Lean principles to marketing and sales requires no major cash investment. In fact it saves cash. A firm of any size and market can deploy Lean in marketing & sales and begin to reap the economic rewards quickly.

Lean principles assure that customers receive the best value possible – and in return, consistent with the law of economic value, your business optimizes its own economic performance.

*****

Copyright Jerry Vieira, CMC and The QMP Group, Inc. All Rights Reserved

For more information on the application of Lean principles to Marketing & Sales, call Jerry Vieira, CMC at 03.318.2696 or visit the QMP Group website atwww.TheQMPGroup.com

The Law of Imbalanced Value

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Those of you who frequent my blog will know I occasionally make reference to “The Law of Economic Value”. I am now calling it “The Law of Imbalanced Value”©. The reasons will become apparent.

That law states:

“All economic value accruing to your firm has as its source, the customer’s perception that they will receive greater economic, emotional, political or physical value from your product or service, than it costs them economically, emotionally, politically or physically to acquire and use.” ©

When we consider any investment of time, energy, money or emotion, we hope for a meaningful return on that investment. We look for an investment that will make us more money (economic), make us feel good (emotional), help us look good to the right people (political) and/or relieve our stress or pain (physical). If some combination of those benefits are not envisioned, we will not be motivated to invest. If the mix of those benefits is not delivered in the optimum relative proportions, we will not re-buy.

The relative levels and mix of the four customer-received value attributes (economic, emotional, political and physical) is a business’ complete value proposition.

At the receiving end, a mix of those same four value attributes must be expended by the customer to buy and use a product.

A common example of the range of complexities associated with this law of imbalanced value and the relative value attribute mix, becomes apparent by considering the process of buying a diamond engagement ring. Imagine the complexity, mix and range value attributes considered in such a purchase.

Thank goodness our B2B world is simpler.

Or is it?

The Value Quotient (and why it must always be greater than 1)

Value, by definition, equals benefits divided by cost. It is a quotient.

The Law of Imbalanced Value © defines the Value Quotient as the Sum of Perceived Value Attributes Received by the customer (benefits) divided by the Sum of Perceived Value Attributes expended by the customer (cost).

This equation needs to yield a perception or feeling on the part of the buyer of a return much greater than 1, or much greater than break even. If that perception is not triggered, the purchase will not be worthy of consideration.

This means the value quotient must be significantly imbalanced in favor of the customer. It also means that the customer must consider all contributing value attributes in their decision process. It also means that a customer-centric marketing and sales process must incorporate the defacto creation, communication and use of that quotient.

The following questions can help you assess and appropriately adjust your value attributes to deliver a perceived imbalanced value quotient to customers.

1. Have you surveyed your customers to ask what value attributes they receive from your products and your firm – and in what order of importance?

I confess to being surprised when I did that survey for my own business several years ago. That answer was flattering, but not what I expected. The result of that survey was an increase in the amount I am investing in what they told me was important vs. what I had thought was important.

You will probably, need to face some cold truths when you see the results of your survey too. Then you must exhibit the humility and courage to reallocate time, money and people to reinforce what customers perceive as valuable. It may be painful, but the reward is less wasted resources on non-customer-value producing activities (see our related post on “Applying Lean in Marketing & Sales”), higher sales and higher marketing & sales ROI.

2. Do customers in all your target markets perceive the set of value attributes delivered by your product/service in the same proportions?

Probably not.

Sub-sets of customers with similar value-attribute profiles form a de facto market segment. Whether or not they fit neatly into, or can be labeled as, a traditional vertical or demographic category is irrelevant.

This kind of market segmentation, based on a common mix of value-attributes received, permits a narrow and cost effective focus on those segments. In these segments the profile of value-received delivers the highest value quotient to customers. This approach typically results in less price competition, higher differentiation and more effective peer-to-peer communication throughout your customer community.

In other words, a common value attribute profile defines your customer community.

3. Do your marketing and sales activities (from product definition and design, through marketing and sales, to customer service) consciously integrate and align the four customer-received value attributes with your target market?

Many small to mid-sized B2B businesses still adhere to a one-dimensional, surface-level economic benefits approach to marketing and sales. As differentiation they may tack on customer service and good relationships. This approach leaves too many unprotected dimensions of value that competitors will exploit.

4. Do your recruiting and training programs communicate and inculcate in your employees and culture your unique formulation of the Law of Imbalanced Value?”

A firm’s value proposition, its unique combination of the four value attributes it delivers, must not be left to the passive process of osmosis, any more than recruiting and training a new member of a football team can be left to chance. The new player must integrate into the team’s system, practice and train hard.

A Non-Action Call to Action

I call on you to think. Not do, but think. Not multi-task. Think.

This is the first, and most common barrier to overcome in achieving the insights and benefits that can accrue from designing your business around the “Law of Imbalanced Value”. Ask your customers, group them by common value attributes and optimize their value quotient.

*****

Copyright 2015 Jerry Vieira, CMC and The QMP Group, Inc. All Rights Reserved

For more information on the process of optimizing the value model and incorporating the Law of Imbalanced Value into your business, call Jerry Vieira, CMC at 503.318.2696 or email Jerry@qmpassociates.com. You can also elect to describe your challenges through our Contact Us page

Discovering the Gold Within Easy Reach

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I am always amazed at the cost and relative uselessness, for small to mid-size B2B firms, of formally published market research reports. Certainly, strategic business decisions must not be made in an informational vacuum, but expecting meaningful, actionable information to come from a general market research report, read by dozens, if not hundreds, of competitors, is delusional.  

So, where should small to midsize B2B firms look for accurate, current, meaningful and actionable market data to support their strategic breakthroughs?

 

The Free Source of the Most Valuable Market Research:

Few small-to-midsize B2B businesses avail themselves of the hidden army of market researchers already at their disposal.  That army comprises any and all of their employees that have regular interaction with customers or, their customers’ markets. That team includes the sales and marketing team, product designers, quality people, customer service, their suppliers and their procurement people. This army is already there and on your payroll. Take the simple steps to mobilize it.

 

How to tap that resource?

There are several low-no-cost actions a firm can take to extract gold from that untapped resource.

  1. Make the expectation for discovering, recording and reporting market intelligence explicit and universal. And reward it!

The most significant growth breakthrough I have personally witnessed was identified by my client’s CFO who discovered, through a casual comment made by his next-door neighbor, an unexpected market for their product that no one had anticipated.  A quick investigation revealed that the economic benefits received by the single customer they already had in that market were so significant that simply by refocusing the sales force on other similar customers in that market, the firm’s sales more than doubled.

The great business thinker Peter Drucker suggested that firms should pay particular attention to, what he calls, the unexpected success – no matter how small they may appear on the surface.  These unexpected successes can signal huge growth potential.

To get the market intelligence gathering collection process started, some firms simply add a section to their employees monthly or weekly reports, entitled “Market Intelligence”.  And it helps to provide public recognition and perhaps a surprise bonus for the most fruitful information provided.

  1. Train the team on what to look for and how to ferret out key information

What to look for may encompass: bits of competitive intelligence, customer and user data, any information about the growth, health and what’s driving the customer’s markets, and, most importantly, applications and uses for your products that are innovative, provide high customer value and that you hadn’t thought of yourself.

Train and expect your team to develop heightened awareness, keen curiosity, ask lots of questions, and dig deeper into customer motivations, benefits and markets.

At another client, a very small volume, but rapidly growing, part they were supplying to a customer, was discovered to be an early indicator of healthy growth in an emerging strategic market.  As in the previous case, a simple partial refocus of the sales team to that sector created multiple years of strong double-digit, very profitable growth.

  1. Create a standard business process for collecting, analyzing and making decisions based on that information

A small company may have, when all hands are tuned on to market intelligence gathering, a dozen or more people regularly feeding their observations into an analysis and clearing house function.  One individual, equipped with a good set of analysis tools, is all it takes to assess that data – and it’s not a full time job.  But the rigor and discipline associated with that analysis must be maintained and acted upon for the results to be resalized..

That analysis tool kit must enable the sorting and validation of hidden customer value, target market attractiveness, competitive positioning opportunities and untapped market potential.

The only thing standing between you and reaching out for that gold that is within your reach, is simply the decision to do it.

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For more information on how to tap into market data gold laying there in front of you, call Jerry Vieira at 503.318.2696 or email to Jerry@qmpassociates.com

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

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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