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Advertising gets you noticed. Your sales staff closes the deals. But it's what you learn from market research about your products, services and potential customers that provides the keys to your business' success.
Marketing plays a key role in the ability of small and medium-sized manufacturers to thrive and become more competitive in today's complex, and increasingly competitive, global marketplace. It provides the tools to target customers, identify their needs and respond with customized product lines. Marketing is a detailed approach to communicating with customers, finding niche markets and ultimately managing for profits rather than sales. It's the link between your company and your customers.
A common mistake that smaller manufacturers make is trying to apply consumer marketing techniques to sell industrial products. But marketing and selling industrial products involves setting up fundamental measurement systems and procedures, then using market research and customer information to make intelligent price, promotion, product, distribution, sales and service decisions.
The Industrial Marketing Pyramid (see graphic), illustrates the marketing essentials on which smaller manufacturers need to focus.
The following 10 essential steps serve as the foundation of a good marketing strategy. Your ultimate goal -- increased profits and total customer satisfaction.
1. Assess your Real Costs and Determine Profit Margins
Measuring your cost of doing business is critical to your company's success. Developing and selling unprofitable products -- or targeting unprofitable segments of the market - are costly mistakes. To fully understand which market segments offer the greatest potential for growth, you first must know which products and customers generate a profit. And to make informed pricing decisions, you must know the profitability of each product.
w Contribution margin is sales dollars less variable costs directly associated with supplying the product or service, i.e., the amount of money available to generate profits and cover fixed cost. For example, product sales are $15,000 and the variable costs associated with generating these sales are $6,100 ($4,000 in material, $2,000 in labor and $100 in sales commissions). The contribution margin, therefore, is $8,900 ($15,000 - $6,100) and the contribution margin percentage is 59.3% ($15,000 -$6,100 $15,000).
w Create contribution margin tables both by product and customer, indicating both contribution margin dollars and percentage. The higher the contribution margin, the more profitable the product or customer. Maximize sales of your highest contribution margin customers and products.
w This analysis may indicate that some higher-volume customers don't contribute the most profit - in fact, they may be costing you money it will allow you to see which of your products are contributing most to your profitability
w If gross margin is the only measure you employ (you don't know your variable costs), go ahead and use it in this analysis because it will at least provide some basis for evaluating which markets, products and services will ensure profitability
2. Identify Your Most Valuable Customers (MVCs) and Potential Niche Markets
This analysis can be conducted two ways, depending on whether profitability data is available.
w Most companies have a customer list consisting of name, address, phone number and sales volume. Sort your list according to sales volume to determine which customers account for the most sales (Pareto's 80/20 Rule states that 80% of a company's sales come from 20% of its customers). The top 20% need to be analyzed carefully
w Ideally, you can conduct this analysis by sorting according to profitability (both percent of gross margin and total dollars of gross margin) by customer. Use the contribution margin percentage data calculated in Step #1. Your most profitable customers (the top 20%) are your MVCs.
w Look for patterns in your list of MVCs, then develop your MVC profile. An MVC profile simply is a way of identifying the types of businesses that purchase similar products and services - niche markets. These can be identified by SIC codes, geographic areas, sales volume, number of employees, association memberships, etc.
w Focus your sales efforts on potential customers that match your MVC profile. Retaining MVCs, and finding more customers like them, is critical to the success of your business.
3. Use your Customer Database as a Marketing Tool
Your customer database probably is your most underutilized marketing tool. Use it to identify your MVCs, for target marketing, assigning territories and sales coverage and as a basis for making strategic marketing decisions.
w Avoid software extravaganza. Databases such as Act, Access, Gold Mine or Approach may be difficult to learn, so start off with a basic spreadsheet program such as Excel or Lotus - they'll be sufficient to provide you with enough information to make sound decisions. When your operation has outgrown the spreadsheet approach, consider the former.
w A basic customer database tracks total shipments, total bookings (orders), sales by customer (account), sales by product or model and repeat customers.
w A comprehensive database tracks profitability by customer/product; growth of customer accounts, quotation or bid analysis; quote hit rate; sales trends; product trends-, lost order tracking; defection/retention rate; sales summaries by territory; MVC list by sales/profit; MVC profiles for prospecting; market niches by SIC, size and type; agent/distributor summaries; and to determine unprofitable products.
4. Gather Competitive Intelligence
Understanding the scope of your competition will help you to more effectively position your products and services to meet the needs of your customers.
w Identify your competitors, both direct and indirect. Great sources include the yellow pages, trade association directories and the internet. Systematically collect marketing and product literature from your competitors. Attend trade shows and ask questions. You'll want information on their pricing, distribution channels, product features and benefits and other issues relevant to your business.
w Determine your competitors' strengths and weaknesses. Remember that their weaknesses are your opportunities. Develop strategies to capitalize on those opportunities.
w Do you know how your customers compare you to your competition? Ask them. Conduct a formal survey or simply call them on the telephone.
5. Identify your Customers' Wants and Needs
That's not as hard to accomplish as it sounds simply ask your customers how you're doing. Once you've identified their needs, you can develop strategies to meet those needs and gain a competitive advantage.
w Conduct a formal survey of your MVCs, either in written form, through telemarketing or a combination of both. This also is an excellent method to gather information about your competition from the customer's perspective.
w Customer complaints are simply a way for customers to express their needs. Assign responsibility and accountability for addressing customer problems to one person or department. Design procedures and forms to assure the complaint is understood, corrective action is taken and follow-up is achieved. According to the Wall Street Journal, a 5% increase in customer loyalty translates to profit increases of 35-85%.
w Your sales force is one of your best sources of customer information. Establish procedures - forms, update meetings, database entries - to assure that customer needs are systematically communicated to management.
6. Conduct Analysis of Unsuccessful Bids
Fundamental to customer retention, analyzing unsuccessful bids will help you improve the success rate of future bids and also will provide you with information on your competitors, revealing their strengths, new product developments, pricing strategies and more.
w Make tracking unsuccessful bids as important as getting orders. Track the number of quotes submitted and won, as well as the cost of preparing each bid quote. A hit, or success, rate of 40% could be too low A hit rate greater than 70% could be too high - you may be leaving money on the table.
w Make the measurement of successful bids a part of your employee contracts and performance reviews.
w Conduct interviews with lost bid customers while details are still fresh in their minds. Be sure to talk to the real buying influencer or purchasing manager and don't be a sore loser -make a positive call. Explain your need for information and desire to improve on your next bid.
w Remember that a response of "high price" frequently is a mask for the real problem.
w Document results of your analysis and develop marketing strategies to address problems and improve your bid hit rate.
7. Identify Trends and Determine Market Potential through Research
There are many market research techniques you can employ to get a composite picture of the market. Look for information on market trends and market segment size, growth and sales potential.
w Use primary research techniques (many described earlier) such as phone research and mail/fax surveys to competitors, industry experts, associations, dealers and sales managers.
w Use secondary research techniques such as reviewing trade journals, directories, and online sources of information to supplement your primary research. Your local library is an excellent resource.
w Document and analyze the information, include it in your marketing plan (Step 10), then use it as a basis for developing marketing strategies and tactics.
8. Organize your Sales Function
Success in business-to-business selling is built on relationships. A sale often will take multiple sales calls, resulting in a sales cycle that can take years. Sales forecasting and sales reporting are business functions integral to success.
w Forecast sales by customer, product or service, salesperson/rep/agent and by market segment. Use the same format for sales reporting.
w Link your sales forecasts and reports to sales and profit goals and objectives. This information can serve as a baseline for establishing criteria to evaluate sales force/rep performance, and for determining sales commissions, incentives and bonuses.
w Compare sales forecasts to sales reports monthly, and share results with appropriate staff. Develop sales strategies, conduct territory analyses and set sales priorities based on the information.
9. Initiate a System of Continuous Improvement to Gain a Competitive Advantage
To gain a competitive advantage you must strive for total customer satisfaction (Steps 1-8). Customer satisfaction includes product quality, customer services and support, gauging customer perceptions - and change. Customers and markets change continuously, so if you want to achieve and maintain your competitive advantage you must constantly refine - and continuously improve - your products and services in response to customers' changing needs.
w Make a commitment to continuous improvement, from top management to hourly employees.
w Base your improvement efforts on customer perceptions. It makes no difference whether a customer decides to buy from a competitor because your product doesn't work or because a salesperson failed to return a call promptly Either way - you've lost the order.
w Gather competitive intelligence and customer information continuously Establish benchmarks when possible, establish goals and measure improvement.
10. Put it in Writing: A Marketing Plan is Your Roadmap to Success
By implementing Steps 1-9, you'll be well on your way to having a written marketing plan. A marketing plan is important because it defines your company's marketing strategies in measurable terms - including prices, sales, target customers, distribution channels, products and product development, services and promotions.
w Because it is in writing, it allows you to communicate those strategies to everyone involved in making your company a success - from top management to hourly employees. A basic marketing plan should include:
w A one-year proforma projection of income statement.
w Measurable goals and time-based objectives.
w An account list and MVC analysis.
w A market analysis with information on customers, competition, market and trends, description of market niches, market size of prospects and sales potential.
w Marketing strategies including a product plan or service capabilities (i.e., for a machine shop); a sales and distribution plan, pricing, promotion, service, warranty and parts strategies.
w A marketing strategy summary.
Summary
Having a well-defined marketing plan is critical to the success of all manufacturers. If you need assistance with your marketing program, IMEC can help. We have staff and other resources with a wealth of experience in marketing research, plan development, implementation and analysis. We also have tools available to help you implement marketing programs using your own resources. Call us if you have marketing questions or concerns. |
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