Start with the customer

The original posting of this article is here.
Be sure to check on the current issue of Explode Your Paradigm here.

In my role as a business consultant I have the opportunity to review numerous business plans. What I enjoy is getting an in-depth look into a wide variety of businesses and meeting some fantastic people in the process. A common denominator is that most owners are extremely passionate about their ideas, they are often technical experts in their field and they are developing a new product or service that they claim is better than all or most of the competition. As part of the plan they often describe how their product or service is better, how they will promote and sell it, how they will price it and what level of market share they will achieve over the first few years on the market. Many plans then dig deeply into specific tactics such as which publications to advertise in, how often ads will be run, when the sales force or outside contractors will be hired to sell their product, how will they be trained, and how much everyone will be paid. They do a good job in describing the marketing mix of product, place, price and promotion but they miss a critical piece.

Many never answer the question who is the target customer and why will they buy your product or service?

“If you build it, he will come” a line from Field of Dreams is often misquoted as “If you build it, they will come.” In real life if you want to develop a product and/or start a business you cannot assume the customer will come. Your customer must be placed in the center of your plan and everything must be built around them.

The GREAT business plans I have reviewed talk about the target customer FIRST!
Who is the customer?
How do you define the customer (age, sex, demographic, income level, likes/dislikes, family status etc)?
What are their needs?
What is a particularly painful need that they need to solve now? Why?
What are they currently using to solve it? Is it working? Why or why not?
Are they willing to pay for something new to solve their problem?
Is the end customer the decision maker or are there other players that make the ultimate “buy” decision. (I.e. if Medicaid (or other third party payer) does not cover your product will the customer buy it?)
How many of them are there? (I.e. how big is the market?)
Where are they located? (I.e. how concentrated is the market?)

Only after a need is established is a solution offered.
What is your product?
What benefit(s) does your product or service deliver that will fulfill your customer’s need(s)?
How do you know it will work?
How do you know your customer will buy or use it? (I.e. have you asked them?)
Who else is critical to the purchase decision? (I.e. your customer may trust their stockbroker to recommend a particular mutual fund to purchase)
How do you inform and influence all customers that are critical to the purchase decision?

Now learn how your customer acquires information, thinks and acts.
How does your customer or customers get their information to support a buying decision?
(I.e. Newspaper, mail, magazines, TV, radio, conversation with a representative of the company, Internet, word of mouth from friends/family)
How does your customer rank the various sources?
How does your customer use the various sources?
(I.e. does your customer use search engines on the Internet to find information or do they go directly to a website? Do they perform their own searches or are searches done by others?)
How much information does a customer need to make a buying decision?
Does your customer want to communicate with you before or after the sale? If yes how will they like to communicate? (Phone, email, online chat etc)
Is your customer willing to tell others about a product/service they find meets their needs? Will they become advocates for your product?
How do they do that? Where will they do that?

Now construct the “story.”
What critical customer needs does your product/service solve?
Why should the customer care?
What is your brand “promise” to the customer?
What things are keeping you from delivering on your brand promise?
How will you overcome these obstacles?

Now write the plan!
Tie the marketing mix (product, place, price and promotion) into what you know about the customer.
What is your message?
How will you deliver your message to the customer?
What tools will you use?
How do you define success?
What metrics other than sales will tell you that you are on target?
What obstacles are you most concerned about? What is your plan for overcoming the obstacles?
What resources do you need to insure success?
What is your plan for acquiring these resources?

Make your plan a great one by starting with the customer. If you don’t know how your customer will respond then take the time and ask. In many cases a small amount of qualitative research should give you the ammunition to justify or modify your assumptions. A solid story will attract the resources and set the stage you need to be successful.

Until next time – all the best!

RolandB

Your CMO and CFO need to talk the same language

The original posting of this article is here.
Be sure to check on the current issue of Explode Your Paradigm here.

The CFO (Chief Financial Officer) has a difficult but rather straightforward job. In most cases they need to recommend to their senior management how to best allocate resources across the business. Unless you can print money these resources are limited. The highest priority projects/tactics get funded, the rest are left on the table for another day when business conditions improve. The difficult and in many cases political process is how to prioritize one project over another.

The CMO (Chief Marketing Officer) is in charge of building the brands that will generate awareness, interest and sales of the company’s products and/or services. The CMO and marketing team put a plan together and then go through the process of convincing the CFO, the CEO and others in management to fund it.

The rest of management put together similar plans for the components they are responsible for. The CFO often asks that each requestor compute an ROI (return on investment) for each tactic. This analysis of dollars returned for each dollar invested provides a scale in which one project can be compared to another. A business development project with a 400% rate of return may be rated higher than a capital improvement project with a 200% ROI. There are many other factors that need to be considered such as the projected level of risk involved with each project and the time horizon to get to a payback however this is a way for dissimilar projects for be compared in a similar language.

A problem is that this method of evaluation works well for an “exact” science. If a company is considering a capital expansion the construction cost is known, the expected savings are estimated and an ROI can be calculated. If the company is considering developing a new product the research and development costs, development timing and the projected sales are estimated and an ROI computed. The same can be said for increasing the number of sales representatives, replacing a fleet of cars with newer ones, or lease vs. buy decisions on equipment or property. But how do you determine the value of a brand? How does increasing advertising spend or increasing the size of a sponsorship compare with the tactics mentioned above?

What many marketers will argue is that marketing is an “inexact” science. A quote often used “Half the money I spend on advertising is wasted, and the problem is I do not know which half” (Lord Leverhulme, British founder of Unilever and philanthropist). We all know that marketing is needed but many marketers are unable to compute the return on their marketing spend and communicate it to the decision makers in the company in a simple way. As a result others in the company may look at marketing spend as a cost of doing business rather than an investment in the growth of the company. When budgets need to be cut marketing initiatives may be at a disadvantage because the CMO has no way to document effect on sales.

I hear leaders of marketing organizations complain the CFO just doesn’t get it. It is not that simple. How do you quantify a relationship? We need to build our brand. They just need to trust me.

I hear CFOs complaining about marketing. What do we get for all the dollars we are spending? How do I know their programs are working? I’m supposed to believe that most of the sales will come in the last 25% of the sales cycle, how do I know it will happen? Are we on target? Why should I increase the budget?

It is like Mars and Venus. We need the CMO and the CFO to speak a common language.

So where do we start? Lewis Carroll wrote “If you don’t know where you are going any road will get you there.”

My suggestion is before you look at next year take a good look at the sales that you currently have. Ask yourself where are these sales coming from? Reorders from existing customers, referrals to others from existing customers (without you having to ask for them), direct sales from your sales force, calls into your customer service group, advertising campaigns (TV/radio/Internet), email, your website, trade shows and others? In many cases it could be a combination as leads may come in as a result of a one tactic, the lead is processed and nurtured by others, which after a period of time results in a sale.

Put a value on everything you do. If a sale was made for $50,000 that resulted in a $25,000 profit after the cost of manufacturing how much was spent by sales and marketing to get that sale. Where did the lead come from, how was it processed, how long did it take?

There will be a number of assumptions that need to be made. Marketing is not an exact science. The result will be all of your sales broken out by tactics used to acquire, nurture, close and service the business. My hunch is that you will see that some of the tactics are extremely profitable. A relationship with an existing client while relatively low in cost to service may result in huge gains in sales. On the flip side cold calling by sales representatives can be extremely expensive while sales uptake is slow.

Make a list top to bottom of all of your sales and marketing tactics and rank by return on investment. What tactics are working for you? What tactics are not? If you can shift some funds from the less effective tactics to the more effective ones how will that effect sales?
A quote attributed to Lord Kelvin is “If you can’t measure it, you can’t improve it.” Measure everything you do. Your method of measurement will improve as members of your team realize the new rules under which projects are evaluated and approved.

A story comes to mind of a man that asks a woman for a dollar. The woman hands the man a dollar and man gives the woman two dollars back. The man asks the woman for another dollar and the process continues for a while the women making a 200% return on her investment each time. Finally the woman says how much money can you make for me and the man replies how many dollars do you have? It is obviously not that easy but the man (in this case the CMO) did not have a hard time getting money from the woman (the CFO) as long as they both knew, understood and were comfortable with the expectation.

The man and the woman were talking the same language.

Now how does all the effect your business going forward? I’ll discuss this in a future post. I’ll leave you with two points:

1) The advance in technology including Web 2.0 tools allows you the freedom to track in real time how successful your marketing tactics are, where your leads are coming from and how they are nurtured. Lord Leverhulme’s comment that half your advertising dollars are wasted is no longer the case! This means that throughout a campaign you have the tools to measure and take actions to expand what is working and change what is not. I will discuss what some are doing and how they are using it for their advantage.
2) Steven Covey says “Begin with the end in mind.” Once you know where your sales are coming from now plan for them by tactic in the future. How many leads will you need at the front end of the sales funnel to guarantee an outcome? How many leads will each tactic be expected to generate? That allows you to manage your sales at every part of the sales funnel rather than just at the end when you see the revenue. Another data point the CMO can use to help the CFO understand what he or she is doing.

More later.

Until next time – all the best!

RolandB

The World Changed!

The original posting of this article is here.
Be sure to check on the current issue of Explode Your Paradigm here.

I had lunch with a friend from my “Spinning” class recently. He had worked as an engineer for RCA Records in the late 60’s / early 70’s. RCA paid for him to go to law school at night. He received a law degree from Indiana University in 1974 and went to work as a patent counsel for RCA & GE Consumer Electronics. In 1987 GE sold the consumer electronics division and the RCA brand to Thomson Consumer Electronics. He eventually rose to become the General Counsel at Thomson and had the opportunity to live and work at their Paris headquarters for 4 years. He left Thomson in 1997 and worked for a private law firm for 10 years retiring in 1998.

What a career and story. At one point in his career my friend was in charge of managing and licensing to others hundreds of RCA patents. I remember as a child there were few companies that could hold a candle to the innovative power of RCA. I can still remember the picture of Nipper the dog staring at the gramophone with the inscription “His Master’s Voice.”

As many of us know RCA is now a shell of what it once was. Under Thomson the brand faltered, quality suffered, and competition increased.

I asked my friend, “What happened. How could a brand and a company that defined innovation fall from grace?” He explained that during the late 80’s and throughout the 90’s the company invested heavily in videodisk technology that did not pan out. It also built a lot of me-too products. Sony, Panasonic and others were developing better products at a lower price point. Brand loyalty decreased. Market share decreased. The brand (and the consumer electronics department) entered a death spiral that it could not recover. A few years ago Thomson sold the brand and products to a Chinese company.

My friend said the world changed and RCA could not keep up.

A quote that is one of my favorites is “The only thing that is constant is change.” About the only thing we can guarantee is that the world will be a different place in 5 years. In some markets it may be totally different next year or next month. It is a given the world will change and we need to keep up or we’ll found ourselves on the outside looking in like RCA.

So what should we do? What can you do now to keep your company competitive?

My advice to many clients and potential clients is to ask how do you compete? Are you (or your company) known for innovation and innovative products and services or are you a fast follower competing on price? If your company is known for innovation you need to be constantly thinking of how you can improve your products and services. You need to ask what will happen if your competition can sell their product for 50% of your price and/or the key technology that you are using to differentiate our products becomes worthless. What would happen if your customers were able to buy from you (or your competition) in a totally different way (think shopping on-line vs. going to brick and mortar stores, or think automatic downloading of movies instead of going to a video store to rent them)? How would this affect your business? How would you compete? You need to brainstorm solutions. You need to plan for change.

Sometimes the more successful we are today that harder it is to plan for change. A common argument is why spend valuable resources to improve or replace something that is working? How can you fault an executive team that is growing sales and profit?

In many cases the best time to plan for change is when things are going well.

I can guarantee that the world will change. I also guarantee that innovators in your marketplace are planning for that change. How you respond is up to you. If you are or want to be known for innovation how much of your time and budget are you spending on defining and leading your market?

Will someone say in a few years that the world changed and you could not keep up?

Until next time - all the best!

RolandB