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Common Marketing Mistakes Which Can Make Your Company Road Kill
by Alan W. Hale
Strategex is a consulting firm helping companies grow. One of the things we have noticed is that companies have a tendency to repeat the same types of marketing mistakes from industry to industry. We have outlined some common mistakes in the hope that companies will look at this and not repeat the same mistakes. This white paper is written by a senior consultant who has 23 years of experience in helping companies grow in business to business markets. The statements are those posed by client management, and the answers are either from results from actual engagements or from secondary research.
1. Our customers are satisfied.
We never hear any complaints from them. This is dangerous, and here ignorance is not bliss. Customers may be evaluating your company and your company’s value proposition without you knowing about it. We had a client in the construction industry selling products through distribution who thought everything was great. When we interviewed a few leading distributors they said the client was too difficult to do business with, and were ready to drop them.
You need to understand how to delight your customers and make them loyal. Loyal customers spend more, churn less, and reducing churn will have a dramatic impact on your bottom line. According to T.A.R.P. a Washington Research firm, 96% of customers who are dissatisfied, don't complain to the company. Instead they complain word of mouth to12 personal contacts.
2. We have done these scores in the past and are doing well with 3’s on a 5 scale.
There are several issues with this. First of all most companies do not rate the importance of these criteria to their customer. You don’t want to spend money on areas which are not viewed important by the customer. Let your competition do that. Also by measuring your performance, your company can allocate its sales and marketing assets on areas which are critical to the customer and away from areas that are viewed as unimportant. We had a client who spent $250,000 in printing color brochures, when what their customers really wanted was to have access to an engineer 24 hours a day. According to research from leading universities, you need to get 80% of your scores for your core segments as 5’s. According to study by Xerox, customers who rated them a 4 were six more likely to switch suppliers than those who rated them a 5.
3. We're sure our customers buy our products now the same way they always have in the past.
Times change. Companies become more sophisticated in their purchasing and may not need the kind of support you've always provided. They may wish to bundle their purchases with a single distributor and for ease of purchasing no longer deal with individual suppliers. A good example of this is integrated supply. Many companies discounted this channel in the early 1980’s, and paid a price with a reduction in sales. In some industries such as valves and pumps, the pendulum has swung back. These products are viewed as technical, and the integrator with its technical infrastructure and relatively low margin could not support the needs of the market. The end result is that you are seeing these products being pulled out of the integrated supply contract.
4. This product is sophisticated enough to find its own market.
Many sophisticated companies continue to ignore the basic marketing tenet of segmenting your market, determining the needs of your market segment, and then develop a product and service offering. Many times, companies make a product then try to figure out why it is not selling. Companies who are "engineering driven" are the worst culprits as their R & D people may be developing products with little marketing input. This leads to products which do not sell at all, or products which have so many bells and whistles, but shoots over the price point the customer will pay.
Customers will need support from new technology products in order to learn how to use them and what applications are the best to use. In industrial products, large companies will not be an early adopter without proven beta sites. Companies must dedicate missionary sales time to cultivate a segment of the market. Think of the Apple Newton PDA. They were so early in the life cycle and customers did not know what to use them for. And stores did not have the educated personnel to teach a customer. The result was a lost initiative for Apple in the PDA market.
5. When our product doesn't perform well in a mature market, we simply lower the price.
This is a temporary solution that leads to long-term disaster. Why cut prices when some market segments may require additional support and services, and may not even be price sensitive? A price decrease is quickly copied by your competition, and the death spiral begins for the profitability of the product. Once price is lowered, it is extremely difficult to raise it again. In every market, there is a segment of the market usually between 5% and 40% of the market who place a value on other things besides price.
You need to segment your customers and determine the correct value proposition. Some customers may be only price buyers, so strip your product of services and sell them at the low price. Some customers may place a value on other services. Offer these customers a value bundled product at a price premium. The trick is to differentiate your product. This may be in the product, the packaging, or the services which surround the product such as after sale support. You need to think out of the box and not just try to implement a solution used in the industry by your competition.
6. Our representatives sell -- what more could we ask for?
Why let your reps chase "suspects", when they could be cultivating prospects? Qualified prospects can be identified through a structured marketing process. We have done research in the past and have found that reps spend 20% to 25% of their time with decision makers. Anything that can increase this valuable time, and direct these reps to the accounts which value our value proposition and are more likely to buy, and will increase your sales. In addition, we have found that the vast majority of reps don’t do a good job in prospecting and cold calling. They are much more comfortable in either being a hunter or developing the relationship. Instead of pounding them with demands to do this, companies with vision provide a process to make these reps more successful.
7. Why should we give our dealers and distributors an inventory exchange program, isn't it their problem?
Unfortunately, it is also your problem. A distributor or dealer only has a certain amount of capital to spend on fast moving items. If a distributor has their money tied up in products that don't move, then it will not be able to spend money for replacement orders. So, you should think about offering an inventory exchange program for overstocked and obsolete products. Several clients offer 3 or 4 times a year a restock program where inventory is exchanged for equal or higher amount of inventory at a 10% to 15% restock fee. Slow moving products need to be stocked either at the manufacturer, its regional warehouses, or at a “master distributor.”
8. We wonder why we give our distributors such a large discount when it doesn't seem like they do much.
The distributor needs an appropriate discount structure to compensate them for the functions that they perform. One needs to understand what functions the distributor can do more effectively and which ones the manufacturer can do more effectively. For example, building the brand equity is usually the responsibility of the manufacturer. Taking orders and shipping from inventory are more cost effective from the distributor. One trend in some industries is to move to a functional discount where the distributor is compensated for certain functions such as inventory, credit etc. In addition they may get extra discounts for ordering on line and providing information about the customers.
9. We're sure the distributor promotes our products.
Just because your product is your top priority, it may just be one of many for the distributor. In order to be a successful marketer, one must know how your product line fits within your distributors product portfolio. A couple of examples of this are cited below. If your product line is less than 1% of a distributor’s sales it really is marginal to them and you cannot expect them to devote selling resources to this. The industrial mill channel is a prime example of this. Many vendors have product sales less than 1% of the distributor sales, and they expect the distributor to missionary sell and open up new accounts. You need to make sure you select the right distributor, and then develop both pull and push marketing programs. You need to train the inside and outside distributor sales people.
10. Our products and customers are so universal, we sell everything the same way.
All market segments are not created equal. Different segments require different types of support and exhibit varied buying behavior. Remember too, it is much more difficult for a competitor to attack a company with a strong market niche than a company with a small share of many segments. Different markets may value different value propositions. All customers are not created equal. Larger potential customers may deserve different servicing capabilities. We have had several clients who have had customers so large, they have one of their sales reps be on site full time.
11. We have lost our “positioning” in the market place.
For a time, both Skil and Black & Decker started to lose their positioning in the marketplace. They sold both to contractors which required heavier duty tools, and to the consumer which required a lighter use tool. This positioning became even more fuzzy when companies like Home Depot and Builders Square came into the market. These companies sold both to contractors and to the homeowner, and under the same brand name. Black and Decker countered this problem is naming a line of professional tools DeWalt and made it a different color to avoid any confusion.
12. Why do you talk about customer segmentation?
We segment our customers by product, by geography, and amount of sales. Companies traditionally segment their customers based on sales volumes, or industry/ applications. Sometimes a segmentation is needed that is based on behavior.
A telecommunication vendor assumed telecommunication vendors would jump at a new software which could cut long distance bills 3% to 5%. Unfortunately, only about 10% of the market were risk takers and would seriously look at the product. The balance of the market wanted to play it safe and stick to the "name" vendors in the market. If they chose the safe vendor, it would be difficult to challenge them if there was a problem. Thus the buyer was motivated by having a vendor who had a track record of having little down time in long distance calls, so they would not be terminated for choosing a new company that had no track record.
13. We put our best people on opening new accounts.
Consulting firms and advertising agencies are notorious in having the "rainmakers" push for new business. Unfortunately, they sometimes do not make sure the needs of the current customer base are fulfilled. It has been shown that marketing to a new customer costs a company 3 to 5 times more than marketing to an existing customer. One needs to make sure this profitable segment is taken care of.
14. We have another line of products, we will just push to sell them.
It is important to know who your buyer is, and what types of products and services the buyer is interested in. A manufacturer of hospital equipment had a high share in a product category. The salesforce called on the nurses and doctors at the hospital. But, in order to save costs, hospitals had started to form buying groups, where the materials management person would get hospitals to purchase the same item so they could get a better price. What happened, is that because the salesforce was not calling on these people their market share quickly plummeted. Another example was a supplier of data products. The story being put forth was that data and telecom products were merging. The data manufacturer had acquired some telecommunication products, and had tried to sell these products to the IT manager. Unfortunately for them, at largest corporations, there is a separate telecom manager who has different needs and different approved vendors in place. The end result was a failure. We recommended a separate sales force to call on the IT contacts.
15. We do not need to get new channels. We have had these for years.
When it is difficult to either gain share of an existing channel, or grow that channel, it is sometimes necessary to find a new channel. This is usually quite painful for the client as they have had these channels for years and maybe the founder of the company had originally signed them up. A manufacturer of a IBM clone tried to get itself entrenched into the computer store channel. Unfortunately, the stores would sell only 4 brands of computers, Apple, IBM, Compaq, and one low end clone. The client did not want to look at emerging channels such as Walmart and Office Depot as alternative channels. The client tried to sell to Fortune 1000 companies, but soon exited the market when sales did not increase.
16. Why do we need to worry about channel conflict?
The issue of channel conflict is interesting.. If you have to much of it, it is destructive. Too little indicates that you do not have enough channel coverage, and are probably losing sales to the competition. A normal rule of thumb is to find it acceptable for channel conflict to be 15% to 20%.
In addition different customers wish to be served by different channels. Take office stationary products. Some customers like to be serviced by a rep who comes in, counts the inventory, then replenishes the stock. Others want to be able to walk into a store to look at the products. Others like ordering from mail order houses or on-line. You need to be in the right channels for your customer segment. The only caveat here is that no channel should have an unfair pricing advantage. If one wishes to reduce the amount of channel conflict, one can use different brands or private label branded products.
17. We demand the dealer carries only our brand.
Although intentions are good, what happens is that you miss out on a part of the market. Channels frequently sell multiple lines both to fill in gaps, and to offer a one source shopping capability to their customers. A client in the spray painting equipment market dictated that their distributors carry only their brand. When one looked at the market, we found that these super channels would have 30% to 40% share. By excluding them from the brand of product, the sales were significantly reduced.
18. We do not believe in rebates. Or, we just give them 2% of sales at the end of the year.
Both of these responses are wrong. Some clients say I already pay the distributor once, so why pay them again. Others, give away rebates usually 2% of sales. Our take on this is that rebates are good as long as incremental volume is obtained through these programs, otherwise you are incurring more expenses for the same sales. Are rebates or other marketing programs more effective in generating business. You need to look at this as an ROI investment.
19. We compete on price, quality and service.
The old rule of thumb used by purchasing agents was price, delivery, and acceptable quality in purchasing. Now, companies are looking at their total procurement costs such as inventory costs. If a customer looks at total system costs, there is an opportunity to be creative. An example is that of a packaging supplier who helps customer save $250,000 in inventory costs by supplying product in a just in time mode and outsourcing the inventory management function to the supplier. The vendor has now become a partner and has made it much more difficult to be displaced by the competition. Why go back to buying cartons from another vendor?
20. Why do we need to be worried about “easy to do business” with?
In many industries the products are similar, the sales people are similar so what winds up as differentiating factors? A company becomes so easy to do business with that it is more painful to switch. Don’t underestimate the power of this in your marketing. Some mail order computer companies have not followed this. It is difficult to find the right person. And if you make a mistake ordering it requires a lot of effort to return and exchange the product.
21. We will make our sales people consultants and sell solutions not products.
If a sales person can understand the needs of the customer and be free to recommend other products and services, they will be perceived as adding value instead of pushing product. This sounds great in theory, but the reality of the situation is that all reps cannot perform in a consultative manner. Some do this naturally, some need to be trained, and regretfully some need to be replaced to employ this strategy.
22. I have heard a lot about National Accounts. I am not sure I buy into that idea.
When a company has a few large complex accounts with many influencers that make up significant dollar revenue, a National Account structure can reap great benefits. For the vendor, they can grow share, keep out competition, and enable them to predict revenue more accurately. For the customer, they get better service, and a team of people and resources to work as a partner to serve the client's needs as well as being a true partner to improve their operations and position the customer to more effectively compete with their competition. The key is that this is a partnership, both sides must be committed to make this work.
23. I don’t need distribution. They are too expensive and don’t do anything. We are going to go direct.
This is one of the more frequently heard comments, and potentially one of the most dangerous. In many industries, it is very difficult to get back into distribution once you have tried to sell direct and cut off distribution. At best you only get the third tier marginal distributors. Channels are there for several reasons:
a. Customers want to perform one stop shopping at a channel. The integrated supply channel confirms this. If you deal with some large companies, all products must flow through their integrated supply partner.
b. The channel may have access to a certain customer or segment. If you want to sell electronic products to electronic manufacturers, you need to sell this channel.
c. The channel may perform some type of after sales service. In the conveyor belt market, distributors perform service such as repair and emergency part shipment.
d. The distributor can have the inventory closer to the needs of the market, and will be able to break bulk. The customer may not want to buy a truck load of a product. The customer may want the product today.
e. The manufacturer may not want to incur additional costs. One example is credit. In the construction industry it is common to have contractors pay invoices 60 to 90 days. Contractors are using the distributor as a short term bank for cash flow. Distributors are more effective in the transactional costs of smaller quantities.
f. Lastly, the distributor due to efficiencies can perform services cheaper than the manufacturer. If a manufacturer had to staff a warehouse with their people and products, it would be much more expensive than the distributor can do by inventorying a much broader mix of products.
There was a client who was in the roofing supply business. They wanted to set up company owned warehouses to compete. When they did this, they were surprised at the low amount of sales. When one analyzed the issue, it was determined that customers only were using these facilities for emergency orders if the warehouse was close to the job site. They did their main purchasing where they could purchase products like ladders, hammers, fasteners, and were able to use trucks from the distributors to bring the products up on the roof. Other failed examples of company owned stores include IBM. Customers wanted to look at other brands of computers to compare, other third party peripherals and software in one store.
This is not to say you never will sell direct. Some customers buy so much and are price sensitive you have to sell them direct or lose the business to your competition. Others require custom products or custom service support, so you may also need to serve these customers direct. But these should be the exception, and your distributor channel needs to know the rules of the game up from when you appoint them.
If you would like to further discuss any of the above issues, please feel free to contact Alan W. Hale Vice President Consulting Services at Strategex Inc. He can be reached at 312-551-0505 or at ahale@strategexinc.com.
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