A "Meter" to help you estimate how much it will cost you to market your stuff

Peter Drucker famously said; "The main business of any business is to find the customer and keep him happy". In any business there are mainly two types of costs

1. Customer acquisition and retention costs
2. Costs of fulfilling what has been promised to the customer

This blog post refers to first type of costs. Depending on the situation, these consist of the costs associated with market research, spotting the customers, meeting them, communicating with them, convincing them, transacting with them, helping them use the benefits from what you are selling etc. This also includes the costs incurred in appointing channel members and franchisees. All of these - non-mfg costs - add up to a pretty big chunk and can be anywhere from 30% to 60% or even more of all operating costs. 

Since they are so large, it makes sense to understand and estimate these costs  before you jump into a business. The meter given below tells you how difficult it will be to sell the product. The more difficult a product is to sell; the more will be the ratio of marketing cost to sales and hence you will need to keep more gross margin in your pricing formula. 

SALES CHALLENGE METER

The more you observe the following the more will be the difficulty and higher will be your costs

Awareness, Understanding & clarity of the customer

(Customer = Customers' Decision Making Group)

1. That they have a “problem” which needs a solution. There are many products for which the target customer does not know in the first place that he has a problem that needs to be solved! Such a person is obviously has no budget, no intention, no search activity and may not be even open to consideration. A very difficult selling situation to be in.  Insurance selling is difficult because of this.
2. They may be aware that they have a problem but they do not know what kind of solution will solve their problem and who sells the solution. In the annual  business gifts market, it is always a big question what to buy and whom from.  

Nature of the Product category

1. Whether the product is standard or customized : the latter costs more to sell
2. Some products are difficult to explain for the seller and/or difficult to learn for the customer because the product it may not be possible to inspect the product before purchasing : it may be possible to understand the product only when experienced (music concert).
3. Differentiation based on soft Ps ( 3 Ps of service : People, Process, Physical evidence) is more difficult to sell than the differentiation based on the traditional hard Ps (4 Ps : Product, Pack, Price, Promotion). Example : Restaurant. As the products become similar due to technology being available to many; it is the soft Ps that are increasingly differentiating the offerings. But their selling involves making people experience. It costs more.
4. Difficulty of making a choice and decision : Many competitors with seemingly similar options and a very wide range confuse the customers and increase his reluctance due to his risk perception that he may be buying a wrong product. The sellers need to spend extra money and time at the point of sale to stand out from the clutter and make the differentiation be known and understood. This happens in the apparel market.   
5. Difficulty in implementing the choice : selling is difficult when the product being sold needs the customer to make  changes in their habits and behavior. Before Eureka Forbes sold AquaGuard, people's perception was built on water filters : two drums : one sitting on the top of the other. AquaGuard acceptance was slow because, contrary to this behavior, AquaGuard needed to be fixed on a wall, attached to a water line and to an electrical socket. 
6. Seller needs to meet ambiguous / undefined expectations. This is the bane of all service sellers : whether an ad agency, an interior decorator or a teacher. Customers are notoriously poor in thinking through and articulating their needs and demands upfront. It is impossible to get final approval without reworking a number of times and all this adds up to the cost of acquiring customers and getting their approvals.  

Decision Making Group of the Customer 

1. It is difficult to sell to a large number of people on the client side. It is not easy for SAP to sell an idea of going in for an ERP to people ranging from data entry persons to CFOs because each has its own viewpoint. There are very few to say yes and very many to say no. The costs become high because you need to employ a whole team of people who can contact and deal efficiently at various levels in the organization. 
2. Risk perception is high when the customers consider themselves to be ignorant and have no prior experience in buying products from the category. And, if there is a social distance between the buyers and the sellers, the problem gets aggravated. Example : When a Vice President from the consulting firm is dealing with a Product Manager. The Product Manager thinks it must be a very risky decision !

Buying situation

1. Person-to-person selling is a comparatively easy situation. Person to group, group to person or group to group are more difficult situations. 
2. First to market 
3. Late to market
4. Size of the seller is much smaller than the buyer

On each of these 14 dimensions I suggest you rate your selling situation and then estimate whether your selling costs will be high or low. The more the challenge, the less you will need to spend on expensive means of customer contact like personal selling,  more on the type of salespersons, more on their salaries, more on motivation and training,  more on support from back-office and more on systems to track them and integrate their work with the rest of the company.