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Appendix A | Appendix B

MARKETING AND COMPANY MATURITY

    At maturity, all decisions are based on marketing and finance intelligence. With detailed planning, mission statements, controls, information feedback and strategies in place, most decisions become inherent and can be made by all empowered employees. Fortunately, throughout the cycle improvements are taking place, and good leadership can force the company through these phases faster. In spite of all the hazards, many companies survive this process and eventually go on to great things.

GETTING YOUR FEET WET

"Companies Exist to Serve Customers
with Products and Services."

    This concept has to sink in before a company can expand its horizon beyond the comfort zone of the small company. Fred Founder started his company by finding a niche requirement that he was able to fill using his expertise and knowledge of the need and product that could fill that need. In essence, a market niche is always there because of the inability of customers or suppliers to fill the need.

    Serving a unique need results in a single-source situation that gave Fred leverage to do as he chose while building his ego. Whenever this occurs, presidents like Fred stop listening and adopt the attitude that says, “Mr. Customer, I know better than than you do what your needs are.”

    Because of his ego and a lack of marketing experience, Fred always pictured himself as the marketing guru. And why not? Since he was the one who closed most of the sales, or at least the key ones. Operating as a big fish in a small pond can be both comforting and financially rewarding. Fred had it great, dealing with many customers having small needs or a few big customers whom he knows well and will tolerate whatever performance they get. But the time came when Fred and his company needed to move beyond this pond and into new market environment made up of sharks-strangers and new requirements beyond Fred’s experience and comprehension.

    I have no doubt that a wealth of people and companies would have wanted and needed Fred’s products or services enough to pay for it. But the trick is always to match that need with company resources and to be able to deliver a solution.

    In the Big Market, customers like to deal with:

    To reach this new market, Fred had to lean a new discipline called PLANNING. Hand in hand with PLANNING comes the other “ing” word MARKETING, and its key basic steps:

1.) Identify a Need in the Marketplace
2.) Match resources to the Need
3.) Find a way to penetrate the Market with Sales

    I have found many presidents who, up to a point, are the best salesman in the company because they ARE the president, not because they have great skills in marketing and sales. By virtue of their lofty position, they can carry the image and leverage to a customer, they have intimate knowledge of the service or product and, most important, they can make a promise or commitment to a customer and then, with total control, make it happen. As the person in charge, he or she may make concessions in price and support that a professional marketer or sales person would not, but it is done under the umbrella of “I am the closer.”

    I have seen many companies top out after initial successes. In fact, I believe this is a barrier that makes “Busting $10 Million” so difficult. The inability to change the company culture as needed is the foundation for this barrier. Presidents who are in the loop usually require all customer inquiries and their demands come to them, but ultimately they will have to give some authority to their sales personnel to be closers.

    Many companies fail because their market is limited to the niche or solution they provide. The product is short lived, and the business opportunity cannot be sustained to build a business. They have myopia: they can’t see anything beyond their knowledge. I have often challenged start-up presidents by asking, “Is this a business or an opportunity?” When recognized as a limited opportunity it’s best to combine the idea with an on-going strategic partner who can recognize the value.

    Before Fred Founder learned the importance of marketing in the new marketplace, there was a long transition period during which he tried to achieve success by passing the sales baton to other personnel. It started with a sales person.

    Sally Sales was hampered by a lack of pricing authority and schedule commitments. It was awkward for her to clear every major decision with Fred. She did a great job getting physically in front of a customer, but in spirit, the president always loomed over the transactions. Over time, growth forced Fred to tend to other matters, which gave Sally more leeway and authority.

    Even then it was difficult for Sally. Her task, at least at first, was to sell product as close to the available product as possible. However, sales forecasts were hard to come by, and the company’s growth was hampered by the reluctance to believe any forecast, or to commit resources to new ventures, including inventory on the come.

    Trust within the company was slow to develop and Sally alone didn’t have the depth to cope with Fred. This situation prevailed until Fred realized marketing was needed as the bridge between the company and the customer.

    When Mary Marketing came on the scene, she convinced Fred that they needed to build a marketing foundation that included:

    Initially, Mary scared Fred and made him somewhat insecure because of her business sense. Fred had never worried about articulating a mission before. It was either in his head or he made it up as he went along. Certainly he never sat down to analyze his resources; he just spit out commitments and busted his tail to make it happen. Customer relationships were easy when the company was small. Fred solved every problem and the customers loved him. Fred believed it would always be that way and there was no need to work the issue. Mary believed that her previous success in marketing was based on common sense and discipline-gathering all the information and then making a timely decision with the resources available.

    Fred was lucky to get Mary because more often than not, the first hire of a marketing manager ends up in a disaster. Without any marketing skills, Fred thought all marketing people he interviewed sounded good-as if he’d never heard of the Pied Piper. But Mary’s maturity and tenacity eventually made it work. In her mind, all good decisions were based on marketing and economic concerns that, when embedded in the culture of a company, made many decisions quick and inherently part of day to day operations.

    Mary likes to tell a story of a classmate who grew up in Las Vegas. His father told him when he was 21 he would set him up in any business he wanted. When that day came, Mary’s classmate said he wanted to be a manufacturer and sell slot machines. And so it happened. The business got off to a great start but growth slowed down. The new entrepreneur decided to expand his horizon beyond Nevada. One day he went over the hill to the states surrounding Nevada. You can imagine how heart-broken he was to find out that very few people wanted to buy slot machines.

    Fred Founder eventually learned that as long as customers find it cheaper to buy a service, a product or a transaction than to do it themselves, they will consider going outside. This had been the basis for starting his company and was the reason his customers bought from him. However, without someone looking ahead for new opportunities, growth ends and the company settles into a “status quo” way of life.

    The need for good Marketing people does not absolve the President from all responsibility. Part of the knowledge base needed in individual situations comes from asking pertinent questions. Marketing people are notorious for predicting market penetration based on numbers. Just because a market is big, it doesn’t mean it is easy to penetrate.

    One famous Pied Piper line is: “With a $4 billion dollar market, don’t you think I can get at least a quarter of a percent? That’s $10 million dollars!”

    The proper response should be: “No!”

    Then there should follow a series of hard questions:

    Good market research should provide the answers and convince top management and investors of the market need. But comfort in believing the plan will come from providing a convincing story on how to penetrate the market.

    Someone like Mary can answer those questions and more:

    This line of questioning often comes from a company’s board of directors and investors. Their biggest concern is whether or not the market can be penetrated. Penetration probability can come from:

    As it turned out, one of Mary’s strengths was developing the sales channel, which led to continued successful growth, all because Mary truly believed the main objective of marketing is to increase sales.

    After Mary got Fred thinking about planning, she educated him on her ABCs of Marketing.

    Most creative marketing personnel see the need for new products and new services on a daily basis, but it is important to focus on those that fit the company skills and resources. I have seen many plans fail, most often for two basic reasons: one, the inability to penetrate the market, and two, the idea as good as it is, can not generate a business.

    The path to entering a market with a product or service requires a simple three-step process:

A. Identify a Market Need
B. Match the Need with Resources
C. Have the Ability to Penetrate the Market

    The level of difficulty for each step increases by a magnitude of 10. While “Identifying the Market Need” is a 1.0, “Matching the Need with Resources” is a 10.0, and gaining the Ability to Penetrate the Market is a 100.0

    One of the first things I look for in reviewing a business plan is whether or not the market plan offers an opportunity or a business. The question to ask is: “Is it a business or an opportunity?”

    Often would-be entrepreneurs get mad if you tell them that many great ideas just aren’t robust enough to develop and drive a business. Their passion and dream may seem like gold to them, but to the experienced eye, the idea may lack substance to bring a solution or whole product to a market. If it’s a good opportunity and has merit to exploit, then a good option is to find a strategic partner who already has a strong position in the market or technology. The trick is to find a company whose technology or market need compliments the idea enough to welcome a partnership. If successful, the financial rewards can be lucrative, however for some this approach may lack the psychic rewards of doing it all and being number-one.

    Even the most vital business dreams can fail because of the inability to understand how to penetrate the market. I chuckle when I see a plan that shows the new entry going from zero to 30 percent of an existing market in two years in. This assumes the established competition is going to sit idly by and watch the newcomer take over. How is it that otherwise competent managers can sit around a conference table strategizing for hours on how to grow market share without consider that the competition is having the exact same meetings?

    The best way to prove the ability to penetrate a market is by having a well-defined sales channel. This can be strengthened with customer letters of intent, a thorough knowledge of the competition and how to deal with them.

    On the other hand, evidence of a successful early penetration can be misleading. One example sticks in my mind from the time I sat on the capital equipment committee in a large company:

    A start-up division that sold high-speed logic devices was asking for several million dollars to expand its foundry. It was extremely excited because sales had zoomed from nothing to $5 million in a relatively short time. But then someone asked, “Has anyone given you a second order yet?” It just took one “No” for the bubble to burst.

    Apparently they had a very strong sampling phase and were far ahead of the market . Because of this, the committee believed their present supply source would be sufficient until the product gained solid acceptance.

    Left to his own devices, Fred Founder seldom thought about market acceptance. He would get carried away whenever he got one order, believing that the future held many more such sales. When the market did not buy into his dream it led to inventory write-offs.

    Mary Marketing brought needed discipline by developing mini-plans for new products that included a market analysis, a sales forecast and a support plan before anyone jumped into the fire with few burning coals.

    Mary took the time to give classes in needs analysis, matching and penetration to the senior staff and to her own staff. This helped both sides and her own cause to get everyone’s cooperation to explore these steps

    She also unwittingly created a great check and balance for her ideas from the educated staff, which can be a boon to any growing company.

IT'S ALL PERCEPTION

    Just about every marketing book I have ever read points out “Marketing is all about perception.” When working with customers, do not get hung up on facts or logic alone, but make sure you learn their perceptions. It is important to find out how your customers perceive your company so you can deal with it.

    In dealing against IBM for years, no matter how good we made our field maintenance capability, the customers still perceived that IBM’s field maintenance organization was Number One. It was frustrating to accept this, especially after being told horror stories about IBM performance glitches.

    Although Mary Marketing was hired to help grow a company that was big in engineering development into a market-directed company, it took quite awhile for the idea to take root within the company. Mary had to pressure Fred Founder to hire an outside consulting firm to do a survey of its customers. Much to Fred’s dismay, the feedback was loud and clear: “Growco is a great, responsive and innovative engineering house, but I wouldn’t trust them with my manufacturing.” Fortunately Mary knew how to respond to this and eventually got the company message across. She recognized the difference between a “marketing position statement” and a “market position.”

    The position statement defines how the company wants to be perceived by its customers in the marketplace. The position is how the customers actually perceive the company.

    Fred wanted the company to be perceived as a “Start to Finish” company capable of taking a product from conception, through engineering design, through manufacturing and finally through customer support and even further into sales development. Based on the market position study, Mary realized she had to do more promotion to create and sustain the company’s market image. She had several choices: public relations, advertising and the Internet.

    Mary first determined that all customer contacts, from face-to-face meetings between company representatives to the company literature, had to effectively present the company’s image and be world class. Her campaign started with the Rita Receptionist. Rita had been with the company for three years and had never had formal training in how to best deal with customer and vendor calls. It is ironic to think how many thousands of dollars go into training salespeople and customer support people, only to neglect the very first point of contact with the customer-the receptionist.

    Mary sent Rita to a seminar at the local Phone Company, and then added her personal touch to the training. She took the time to explain the company’s vision, mission and values and topped this off with a detailed description of the customers and their key personnel. To be sure Rita got the message, Mary called in every chance she got to see how Rita answered the phone regardless of the time or day or her mood at the time.

    The next step was to review the literature, most of which had been around for years. Mary realized it needed drastic changes. It was heavily technology orientated, and she wanted to direct the literature toward problem solving and customer service. The main change was to establish a theme that supported the position statement Fred wanted and the company vision and mission. The vision and mission were clear enough, so she redefined the position statement to support the vision and mission.

    Mary then turned toward promotion choices and examined them in terms of economics and effectiveness.

    Mary knew a local PR firm that, for a modest monthly retainer, would try to spread the word on Growco to all the publications they had contact with. She knew they could write great copy with her, however there was no assurance what percentage would be published, and even if so, where. Mary had once written a two-page (500 word) product release that ended up in some publications with fewer than 50 words. On the plus side, a good product review by a respected magazine can have more value than money could buy.

    Mary’s take on PR was that you traded free space for uncontrolled copy, but interestingly enough such product hype was perceived by customers as unsolicited and true opinion.

    With multicolored ads and pages in magazines costing several thousand dollars, this alternative can be expensive. Coupled with the need to do it on a continuing basis, it takes a well thought out campaign to be effective. Fortunately, whatever copy is provided to the trade publication will be published in total because the space is paid for. To make Mary’s job tougher, Growco had several technologies that played to different market segments. Picking the correct publications for the campaign required extra effort. Besides the cost of the ad space, the ad itself had to be produced by an outside agency, since Growco did not have in-house capabilities.

    Mary’s take on Media Advertising is that controlled copy is a plus, but that there are two negatives: the high cost and trade ads are limited persuaders because customers perceive them as self-serving.

    Mary believed that the company had good stories to tell the customer base, which made the direct mail approach make sense. Her main problem was the lack of a substantial database to direct the mailing. She found she could buy lists from different sources, including the publications that she determined were the ones being read by her customers. However, Mary knew that even something as simple as direct mail had right and wrong ways to do it; so she had her people attend seminars and talk to outside consultants. Everyone learned that a one-shot mailing is hit or miss, and the key to getting your customers’ attention is repetition, repetition and more repetition.

    I truly believe that a company’s existing customer base is a great asset, and even though it is intangible, it should be on the balance sheet-counted as part of a company’s value, just like goodwill. However, you have to take care of the customers for the base to have any value.

    Another major realization from Mary’s analysis of direct mail was that Growco wasn’t communicating very well with the existing customer base. Contacts with customers were sporadic and haphazard. Also Growco’s customer base included leaders in each of its marketing segments. The relationships were good, but there weren’t enough of them. So for her own direct mail approach Mary decided to put out an informational newsletter to existing customers on a regular basis to keep them informed of Growco’s continual growth and transition to a full-service company. For instance, to convince the large customers Growco could provide higher levels of manufacturing, the first newsletter featured a story about Growco’s achievement of ISO 9000 status.

    A huge benefit from Mary’s newsletters was the formation of customer user groups. Almost the ultimate in communications, the user group provided direct and focused feedback from the customers to the company.

    Mary’s take on direct mail: A good combination of modest cost and a targeted audience.

    Growco’s product offering was not very conducive to local selling or the expense of National TV Advertising, which by the nature of it, is a “shotgun” approach rather than targeted.

    Her people came up with imaginative ideas for this media, but Mary shelved them until Growco could enter the consumer or commodity markets.

    However, on a positive note, one radio ad placed by the human resources department was successful in finding employee candidates at a very low cost.

    Mary’s take on Radio/TV advertising: Radio ads are suitable for low-cost local advertising, while national TV ads should be considered if and when Growco becomes a multi-million dollar consumer products company.

    Mary has mixed emotions about trade shows. The bigger they are and the higher the exposure, the higher the cost. Her past experience with national shows was bad. She found that the better locations, like Las Vegas, the better chances that attendees would be managers and decision-makers.

    In her last employer ( a $10 million revenue level) $300,000 had been spent on just one trade show which attracted hundreds of thousands of visitors and exhibitors who felt compelled to be there or be perceived as a minor or non-player or worse yet, a player who was in trouble. Mary estimated that 100 qualified leads were gathered from the show-a decent number for a sales team to pursue but very expensive when you figure cost per lead.

    Mary’s experience generated the following advice: “If you can’t deliver what you promise, existing and potential customers will seek out their solutions elsewhere, never to return.”

    Mary believes that trade shows are expensive and time-consuming, but ideal for face-to-face contacts, for checking on competition and for keeping informed about the industry in general.

    Regional shows can be far more cost-effective and, for just a few hundred dollars or even a couple thousand dollars in expenses, can yield far lower cost per lead. It’s not unusual for a small show to attract between 200 and 500 targeted and very interested customers.

    Since Growco’s market was engineers, who rarely left their cocoons, the regional shows with their free parking and free lunches were great attractions.

    Mary likes regional trade shows for their face-to-face contacts, low cost per lead and higher percentage of qualified leads.

    Trade magazines and trade shows clamor for articles and presentations. Technology-based articles and conference presentations have far more impact on credibility with customers than paid ads.

    Unfortunately, Mary ran into what is a typical problem in every company and every industry, the “I’m too busy” excuse. The only way to move this request up on the priority charts at Growco is through greater education about marketing at all levels of the company. Mary was at least able to get Growco’s president, Fred Founder, to offer compensation rewards for any article written.

    Mary’s take on Articles and Presentation: A great low-cost method for building company image.

    Mary has tried at trade shows and conferences to have Growco provide seminars on how to utilize Growco’s product. This required real planning and effort, and it was hard to get the full participation of company personnel. Unless you have someone inside who will champion the idea-who believes in the seminar concept and can present them-they are not going to happen.

    Mary feels strongly that seminars are extremely effective in image building to a limited but controlled audience.

    Having tons of people calling customers on the telephone is not too effective for an OEM supplier. Mary believes this method is better suited to companies that deal in commodities or services. At the same time, she knows that whether the leads are from trade shows, direct mail or advertising, follow up phone calls are essential. And she believes that, in most cases, marketing support people can do an effective job without tying up the sales force.

    Mary’s take on utilizing the fax/phone system: Low-cost, very effective for corporate image building and letting customers know you care.

    One thing Mary does not believe in is focus groups, especially in the Original Equipment Manufacturers (OEM) market. A well-run focus group might help find customers for an existing product, but not for new products. Great inventions like fax machines and PCs could not have evolved from a focus group.

    Without a doubt, the Internet is here and NOW. It can be an effective image builder and must be included in any marketing/sales plan. But it too must be implemented carefully and according to a well thought-out plan. And if you don’t have the internal expertise, get help from outside gurus.

    Mary saw many companies fail with their web sites because they did not know how to focus their efforts on the internet-whether to get business or to aid with sales and image. She believes web site development is not simply a matter of concentrating-on-the-positive aspects of a company. First off, the creative input should not be left to the web designer (either inside or outside the company), rather it must come from engineering, marketing and management. Like any marketing venture the companyweb site should be approached from a focused perspective that has a definite purpose, defined audience and clear message.

    As a practical matter the web pages must be designed to download quickly. Too many graphics will slow download times and the passage of information. Too much text too early in the site can also frustrate an audience. A well-designed site should provide important information with hyperlinks to useful extensions and, most importantly, it should incorporate e-commerce. The easier it is for a customer to get information and then to place an order, the better the chances for a sale. The mechanics of the site must provide the means for coming up high on browser and search engine selections. This can be a very creative exercise. If your site is defined by words that lump you in with hundreds or thousands of other alternatives, your customers may never get to you.

    Mary has taken the Internet seriously and has convinced management of its importance and the needed investment: “It’s here to stay and must be utilized to build the image of the company.“

    Mary knows that one common, very important consideration in choosing any marketing vehicle relates to the return on investment-comparing each vehicle on a cost-per- quality lead basis.

    For instance, she compared a national trade show that cost $110,000 to a regional trade show with expenses totaling $2,500. The national show yielded 140 qualified leads, or $785/lead, while the regional event resulted in 58 qualified leads, or $43/lead. She also analyzed the last trade media ad (full page, four-color) that cost $4,000, and found that it generated 15 qualified leads for $266/lead.

    Of course, cost/lead isn’t the only criteria for choosing a marketing strategy, but it’s a strong one. In planning the image-building campaign, first you have to decide what story you want to tell to each of your target markets, only then can you figure out the best way to tell it.

    Mary learned that when a techie president talks of changing the company from a technology-driven one to a marketing-driven one, it is better to think of it in terms of a company that is technology-driven but is directed by marketing.

    Fred Founder never heard of a Position Statement until Mary Marketing asked him one day, “How do you want the market to perceive you?” Fred had always believed the customers knew where he was, and would find him when they needed him.

    “Of course,” Mary explained, “that was okay in your little niche, but you hired me to help make the company grow.” Mary told Fred one of her experiences to show Fred it all starts with a vision and is followed by a mission statement.

    Early in her career, Mary worked for a growing company making parts for the plumbing industry. Her boss and owner had a clear vision. Ever since he was a kid following his father around fixing leaky sinks and toilets his vision was: “To be the best most innovative manufacturer of bathroom fixtures, and to be known around the world as King of the Crapper.”

    A good goal but not necessarily the basis for a business plan. Mary helped him, and together they built the vision into a mission statement:

    “To provide premium innovative bathroom fixtures, utilizing a new technology for flushing, to the leading construction companies in the International market.”

    This was then used as a position statement for the company.

    Mary knew Fred had his vision well thought-out in his head, but he had never committed it to paper. So, together they banged out a market positioning statement. They even ran it past the staff at an off-site staff meeting to get their support. This is what they came up with: “From Start to Finish, GROWCO is with you all the way. We know the concept is just the beginning, and we will help you find the solutions you need in design, engineering, manufacturing and service support. GROWCO your Full Service Solution.”

    Afterwards, Fred felt good, but Mary cautioned him that this was only the first step toward having the market accept their position. Now the market perception, whatever it was, had to be changed to reflect the position statement.

    In reality, your market position is always whatever is in the eyes of your customers. Avis was perceived as the Number 2 car rental company long before they capitalized on the perception and built it into their mission.

    Early in her career Mary had learned that perception is the key to many sales, so it is very important to construct a perception that fits the direction you want the company to go. Fred’s early customers had a great perception of him and the company when he had the time to service all of them. So it would not be too great a stretch for them to see Growco as their ”Full Service Solution.”

    Mary had to do a lot of research to match the growth potential to the marketing position statement. There is a big difference between staying with a market niche and wanting to be the leader. Formerly you attacked your competitors’ weaknesses, but being the leader requires aggressively going after the strengths of your competitors-something that is far more risky and expensive.

    Mary found it best to give a tutorial on the many ways to promote the company. This is the direction Mary was leading Fred and the staff because some of the cultural changes required spending money for promotion and moving everyone into a marketing mindset. She needed the support of the group and wanted to continue to lead them.

    In meetings, Mary presented her entire promotion position plan and got Fred’s approval. While on a roll, she also makes the pitch that marketing was everyone’s job in the company, and any contact with a customer should be first class. She eventually trained the receptionist, organized customer visits, got the shop cleaned up, redesigned all the sales collateral and started a newsletter that shaped the company image for customers.

    She was pleasantly surprised by the support she got from engineering for their quick responses to proposal requests, to customer visits and trade shows and not talking down to customers.

    Besides the mission statement, Mary also wanted to respond to the customers’ preferences for:

• Winners

• A Positive Attitude

• The Best

• The First

• The Leader

• Some Mystique

    She couldn’t practically fit all this into her promotion program, but she did set out to present the best image she could.

    She also knew she had to kill the bad image some customers had. She learned how to turn negatives into positives:

    The results were rewarding. Customers had always respected Growco’s technical competence, but they were leery about follow-up and manufacturing. Now customers consider the company a one-stop shop for all their needs. Mary’s campaign paid off inside the company as well as outside. Inside she had everyone believing that no matter how good you are, marketing is always about perception.

SANS MARKETING PLANS

"We are moving from an engineering company
to a marketing-driven company."

    I have lost track of the number of times I have heard this said by clients in planning and strategy meetings. They always say it as if it were the most natural transition in the world.

    It ain’t.

    Engineering background personnel start most technology driven companies. Techie’s usually recognize the need for a product or service in the market they are in. Since they understand the need in great depth, they can convince investors and associates to join them in a new venture. If they guessed right, they can build a successful enterprise based on their knowledge of the market and need. But as they grow, competition becomes fiercer, customer requirements expand and potential opportunities abound. The problem becomes, “What opportunity to select or what to do for an encore?”

    In most cases, without supplementing the technologist with marketing savvy, the company stagnates and some even disappear into oblivion. Intelligent techie presidents recognize the shortcoming and start voicing the party line: “We need to move to a marketing company.” The trouble is, few know how to make this happen, and even fewer recognize the impact of what can happen without marketing plans.

    Let’s look at what happens when marketing plans are weak or non-existent.

    In the development phase the product will be ill defined. The results are constant changes, incompletion, missed schedules and certain overruns in costs and budgets.

    Product direction, when not controlled, can change every time a new customer input is received, creating numerous inefficiencies and delaying the product definition and product launch. Delayed schedules tie up personnel, not only hurting the product being worked on but also preventing other engineering activities from happening. Programs are often misguided by the inputs from a large customer who may not have the pulse of the market any better than the company doing the development.

    The answer:

    Production suffers from the lack of a well-thought plan by:

    The answer:

    How many product plans consider life in the field?

    Seldom will you find a plan that plans the end of the life of a product. Considerations like spares, main-tenance and product support are often left out of the planning process.

    The lack of a marketing plan also impacts the customer: Customers will ultimately forget high prices and late delivery, but poor quality will irritate them as long as it exists.

    Ironically, customer support never seems to end for a poorly conceived product. Supporting poor products goes on forever and the difficulty of fixing problems gets tougher as they age. Many “design fixes” even create other new problems.

    One of the most serious impacts on a company’s efficiency is the dilution of management under a flood of poorly performing products and never-ending frantic calls from irate customers! Every time there is a hiccup from the customer, a meeting must be called causing countless, inefficient and wasted hours.

    The final blow that hits the bottom line is the ultimate write-off of inventory (and in some cases, capitalized engineering development) that is left on the balance sheet because it outlasted the product. I can say, without a doubt, inventory write-offs are most severe for engineering driven companies. (If you don’t believe me, or understand how this works, read Will the Real Inventory Please Stand Up and Be Counted.)

    It is incredible how many wasted products are built. In all the turmoil of change upon change, “cherry picking” (selecting the best or what works) becomes the norm. The result is a bunch of defective parts or units waiting for an inventory write-off.

    The answer:

    One reason Mary Marketing joined the firm was because she was impressed with the attitude of engineering, the infrastructure and the controls. The documentation control system was the best she had seen in her career. Unfortunately, she wasn’t aware of the company’s history. One of its first product lines had very little in the way of specifications or performance criteria. She had her worst nightmare when a customer had field problems with Product One. The original design engineers were long gone. The company had a poor warranty program that further weakened her position with customers. There were even times when the source code couldn’t be found. It seemed like every customer complaint caused internal strife and stress that affected the relationships between marketing, engineering and manufacturing.

    Product One became the “product from hell.” It took over a year for Mary to wash the problems out of the system. Management dilution throughout the organization was tough to measure, but it is believed it slowed down the new product release by close to one year.

BEST TO WORST

    The time it takes a market to accept a product or service depends on the nature of the product being offered. More often than not a great idea will die long before the market embraces the product and makes it successful. Since the marketing of products varies with customer needs, it’s important to have a product launch plan that includes customer satisfaction by identifying the need and promoting a perception that the need will be met.

    No doubt about it, promotion can help a product, but over the long haul the product must be perceived by a customer as a need. In the high-tech world, products are being generated on a daily basis. Retail store shelves continually expand and trade magazine ads proliferate constantly. Obviously all these products have operating characteristics that serve some function. Some products are continually replaced while others are doomed to collect dust and eventually be kicked out of the store. Highly promoted fads, such as the older hula hoop and the more recent Beanie Babies that took the country by storm, definitely benefit from promotion, but then quickly lose popularity.

    At the top of the customer acceptance pyramid are products that improve performance and that provide cost savings. Near the bottom are products, like insurance policies, that do not excite the customer.

    So Whatcha Gonna do?

    Consider the range of what I consider best to worst that follows.

    A good example of performance improvement is the RAM memory chip for PCs. Even non-computer literate users can appreciate the improvement in computer speed and expanded performance that comes from software applications provided by expanding memory. Performance improvement is also obtained by expanding the hard drive in computers. Gigabytes of disk drive storage capacity are now common, but a programmer of 30 years ago only dreamed of having that much memory available when she went to heaven. Application software today require tons of megabytes to run the program. The avalanche of PCs accelerated as cost performance was improved. Today they have better cost- performance than mainframes did 20 years ago.

    Throughout the ages, capital equipment policies and committees supported approvals based on cost improvement. Improved productivity and higher Return on Investment (ROI) topped the list of reasons for improvement. If a product can reduce personnel needs or speed up machine time, the probability of success is greater.

    In this country it is possible to sell 50,000 of any gadget or high-tech device because a segment of the market wants the latest and the greatest. It’s a matter of providing features that meet the need for ego gratification. Look at the growing success of satellite global positioning systems (GPS) that are being sold for automobiles. One of my client’s staff members was one of the first customers of the GPS device. It was expensive and cost a lot to install, but the recipient thought it was great. Except testing it right after the installation or to demonstrate its cool, he hasn’t used it since.

Combining all of these good positions is the “Killer Application.” The Internet has brought new dynamic applications almost on a daily basis. However, you must have extreme marketing astuteness and luck to hit on a “Killer App.” You can wait for luck to be successful, but you can make it happen by being on top of the market.

    Coming out with a new alternative to replace something is a tough sell. In fact the toughest (and most overlooked) alternative to sell against is “do nothing.” I was party to a well-produced, informative presentation for a new service to the Information Manager of a large multi-national corporation. When the lights came up, the Information Manager’s supervisor, who had the final level of approval, asked, “Will we die without this product?”

    When the Information Manager gulped, paused and blurted out, “No”, the meeting was over and the sale was dead. The same certainly applies to the customer. It is always easier to stay with the status quo. Few people welcome change of any sort, so “doing nothing” is an easy path for the customer.

    Products that require educating the user may eventually make it to market, but the cycle of acceptance and robust sales levels can take forever. There have been many high-funded startups in California that have failed because it took too long. One company went through $75 million dollars with a pen computer, and died before the technology got accepted. When you spring a new idea on the customers, you have to plan on a heavy investment in time and money before success can be attained.

    The “Insurance” product solution can even take longer than education to reach projections and market acceptance. The need for insurance is always there, but customers are reluctant to pay for it. After a major disaster like the computer system crashing, then the need for a tape back-up system is recognized. I have been involved with tape back-up for more than 20 years; the first product I encountered was for an IBM Series 1 computer. Our solution was better and cost 25 percent of the IBM solution. The differential didn’t matter because few customers were buying tape back-up anyway. Twenty years later, one of my clients got into selling tape back-up for PC’s. The product, story and collateral were all great, but after a burst of sales for a couple years, sales tapered. I recently polled 10 individual PC users and not one had tape backup.

    The last on the list is a product that captures the imagination and fancy of customers. It’s clearly tough to predict a fad, and unless you are first, the fad will go away so fast you won’t have a chance to capitalize as the Number 2 entry.

Planning Essentials

    Timing of a new product or solution in an emerging market is crucial. If a market pull can be created, chances of success are enhanced. Many companies building ”plug-compatible” products for computer manufacturers like IBM or DEC thrived for years in a market pull for their products.

    Whatever solution the product or service offers, timing and success depend on establishing the customer’s perceived need for that product or service. With all new products, the launch must overcome customer/user ignorance.

    In retail markets, the probability of success depends on the ability to generate market pull. Unfortunately, generating pull is costly and time-consuming. However, unless customers seek the product it will die Many retail products die because the funding isn’t sufficient to promote the product. With thousands of products to fit in hundreds of feet of shelves, a product must move or else, at the first sign of dust, it is yanked. The ultimate indignity is that many retail stores actually charge you to use their shelf space.

    For suppliers of OEM products and services the greatest market pull comes from your reputation or market position. If a customer perceives you as the best, he or she will find you first, before your competitors.

    Another shortcoming for launching new products is the lack of defined and available channels for the customer to buy them. Mary Marketing was so proud to be one of the early users of a Web page. The problem was, no one knew about it. It wasn’t until she incorporated the web address into all of the site’s literature and presentations (including trade shows) that her customers started looking for it.

    The foundation for the success of any of this is the need for good marketing people to convince customers they have the need for the product or service, even when they don’t.

LESSONS FROM HISTORY:
THE BIG THREE

    Markets are just like the weather in New England, if you don’t like it, wait; it will soon change. Today’s markets change so fast companies must go with the tide or be left stranded on the shore. Even if it appears you are in the number one position, complacency and arrogance will pull you down.

    Long before the customer was King and Queen, a few suppliers dominated the markets. In fact, it seemed like three was the magic number in the major market segments.

    As you can see, even the names with staying power are no longer dominating their markets. In fact, many on the list have expanded far beyond their original market.

    The shortsighted automakers in the 50’s never gave one thought to the possibility of foreign imports. Having foreign owners making automobiles on US soil and using US workers was unthinkable. Foreign competition and innovation impacted many of the stagnant brains in Detroit.

    The exception to the three-peas-in-a-pod rule was in the computer industry where, because IBM was so dominant in the computer market, the major competitors were the so-called “seven dwarfs.” IBM was so strong it was tough not to buy from them. It was often said in the market that you couldn’t be fired by selecting IBM. Today, most of the seven-RCA, Xerox, GE, Honeywell, DEC and CDC-are long gone from the computer market. IBM’s plan was to reach $100 billion in sales by the year 1990. However, it’s only now in 2001 that they are approaching this level. Innovation by its competitors, both in technology and manufacturing, caught IBM by the throat, stymied its growth rate and caused it to suffer multi-billion dollar losses.

    One major factor that killed IBM’s growth was the market’s move to “open” systems. During the days of yesteryear, computer suppliers were structured to provide entire computer systems along with all peripherals and software. Once a customer committed to a supplier he was in essence married to him. You had to go back to them for every change, expansion and enhancement you needed. When open systems came into the market, the customer could go to several compatible suppliers for the CPU, peripherals, enhancements and most important, software and application needs. Open systems spawned numerous companies because of their innovation and quickness in reaching the market.

    The larger companies had an inertia that killed them, or as in IBM’s case, slowed them down, which allowed smaller companies to eat away at their dominance. The all-time classic scenario occurred when IBM went outside it’s organization to get the PC computer operating system and created a giant now known as Microsoft. Another force in today’s computer market, Intel, was given the contract for the basic processor.

    Even IBM, as dominant in the market as it was, only reached less than one million users. Today Microsoft reaches millions more and dominates the microcomputer market, while battling competitors, the US Government and several state governments. The irony is that IBM helped to create the PC computer world, but by maintaining its philosophy of a closed system, it was not alert to the changing market and lost considerable revenue to the competition.

    Arrogance and complacency should have no place at all in a company marketing strategy. The TV networks learned the hard way when a dramatic market shift hit the industry. In the early 1980’s, CBS, NBC and ABC reached more than 95 percent of US homes. Now that number at some periods has dwindled to below 50 percent. Such declines have occurred as a result of innovation, which new competitors take advantage of and which give audiences new choices. Most of all decline in market share can only be blamed on miscalculations by the studio chiefs-the failure to read the signs.

    During this period of decline, several factors occurred:

    According to TV critics, programming quality has continued to decline along with audience share. It should cause you to wonder if much of this decline, although not foreseen, could have been avoided by better programming the product they were selling. Of all the critical issues discussed in the board rooms of the major networks during the past 15 years, did the quality of the product, or the quality of the packaging ever come up?

    Whatever the reason, all the big three have lost significant market share, only some of which can be regained by merging with the competition.

HIGH-TECH COCKTAIL TALK

    I have stopped counting the times I have participated in interesting, intense discussions about products, technology and starting companies over cocktails, beer and more recently, coffee. In fact, I take credit for coining the term “cocktail talk” (something my peers and friends will vouch for).

    A friendly environment and camaraderie seem to bring out the creativity in all of us. Plans, promises and commitments to do something together evolve before the night is over. Some of the most exciting plans and killer applications develop in these sessions. But from the next morning on, nary a word is ever mentioned again about the actual “cocktail talk” follow up. The ideas just faded away. Why, there must be hundreds of innovative ideas swept off the floors of cocktail bars and coffee shops daily.

    When technical personnel decide to go forward with their brilliant ideas, they often don’t seem to realize they only have part of the equation. They certainly know all the details of the design and how they play together, and they may even have a very good understanding of how the user will benefit. But they fail to understand what marketing is all about.

    For an executive, the first mistake is to believe that because you think it is a great idea people will fight to get their hands on it. Even if a user thinks it is a great idea, it doesn’t guarantee he will pay for it. There are many other factors that come into play (especially that his best alternative is to do nothing), all of which have to do with marketing.

    The key questions have to be asked:

    And these do not even address all the financial aspects or those related to manufacturing.

    We have all heard about the fantastic success of innovative startups, but not as much is ballyhooed about the billions of dollars lost by investors in new-ideas-that-couldn’t-miss, but did.

    In my recent work with companies trying to bust $10 million, I find that most firms fail because they lacked marketing know-how. Companies get off the ground and grow to as much as $10 million in sales from their first idea-the one gleaned from a niche not seen by management in their previous company or a real good technical idea that has an immediate window. However, the essence of sustaining growth is coming up with a second product, and unfortunately, following “Idea Number One” with “Idea Number Two” is much more elusive and hard to pull off without a thorough knowledge of what the market needs and is willing to pay for.

    Another cardinal sin by techies is their lack of perspective and understanding of the capabilities of the potential user. I have sat in many strategy and board meetings that were full of passion and expectations because a new product or idea sounded like it would capture the market. My habit was to glance around the room and note:

    I began to wonder if this was the group to judge whether or not typical home users or doctors or lawyers would buy the new product. I didn’t think so then and I don’t think so now.

    I keep hearing about applications for small business, but when I have polled members of my Executive roundtable, the topic is foreign to the group. Once I heard about a voice recognition system required at least 133MHz processor and 128MB of RAM. In the whole room, I was the only one in the meeting who came close to having a computer with those specifications. At that time, few if any doctors, the targeted market, had this capability.

    Another example is the video phone, predicted to be afuturistic essential of the 1960s, but where is it today? It took a while for the developers to realize that it wouldn’t be much good if no one on the other end had one too. Today even with the Internet and web cams, we are as close as we ever have been to the dream of seeing the person on the other end of the line, but still far from the market penetration of the telephone.

    A variation on this problem is the Techie’s desire for the perfect product. Why does it take 95 percent of the time to do the last 5 percent of the design? Given the chance, most engineers will continually try to improve the design unless it is taken away from them.

    Ed Engineer will admit to this in his past, but today Ed has been converted to the marketing religion and perfect sense. He actually insists that Mary Marketing provide him and his engineering group with marketing specifications and requirements before he develops a technical spec to meet it, and before he actually starts the design.

    I have seen many start-ups misled by successful beta testing. Often the product is given to friends or sophisticated people who understand the product and make it work, so the test is not with the target market. Another issue involves the willingness of the customer to buy the product after testing it. I experienced a program with a client who was servicing Fortune 1000 company users. Everyone loved the software beta program, but nobody wanted to pay for it once they had it, even at a discounted price. When asked to return the product, everyone did. So the beta was a success, but the project flopped.

    On give-aways the issue is always the same, “If the beta product is so wonderful, why isn’t the customer willing to pay for it?”

    I have been involved in many programs where everyone is excited, but one problem undermines the program. For instance, in the early days of video on demand, equipment manufacturers, cable providers and users loved it. But no one figured out who would pay and who would make the money. This delayed the program for over five years.

    The saddest fate for a tech-driven company is to have a great idea, a great product and perfect market timing but to lack the resources and cash to make it happen. The yellow brick road is paved with shrink-wrapped products collecting dust in some storage unit somewhere.

    I advise any start-up, particularly a techie, to study cash management and cash flow before starting their company and risking their estate and that of their friends and relatives.

    Couple this with a short course in marketing and their chances of success increases tremendously.