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.

5 Myths about Marketing

Although I do not agree with this article, there is some truth in it. That's why I am giving the article to you as it is : in-your-face : articulation.

5 Myths About Marketing

MYTH #1: “Marketing is Useless”

·         Who Says It: The Sales Team. Why They Say It: They can’t see how the activities of the marketing group are helping them make sales.

·         Why It’s a Myth: While it’s true that there are hundreds of thousands of marketing groups that have no intention or ability to help sales groups to sell, there are just as many marketing groups that are an incredible asset to their company and are responsible for increasing revenue and reducing the cost of sales.

·         Why It’s Dangerous: When the sales team believes that marketing is automatically useless, it might not be able to see the benefits of what the marketing team is already doing.  Worse, it prevents the sales team from articulating how the marketing team can provide even more help in the future.

·         How to Cope: Sales management must take the lead, by finding elements of the marketing group’s activities that are having a positive impact, and communicating that benefit to the sales reps.  The two groups should be encouraged to work together and goaled on their ability to do so.

MYTH #2: “Marketing is Strategic”

• Who Says It: Marketing Executives  Why They Say It: If the marketing function is considered strategic, nobody will look too closely at whether it’s really having a positive impact on revenue or profit.  Instead, they’ll simply assume that spending money on marketing is important, which makes it easier for marketing executives to grow their empire.
• Why It’s a Myth: Marketing is a tactical function that’s supposed to make it easier for the company (and specifically the sales team) to create profitable revenue.
• Why It’s Dangerous: Marketing groups that are “strategic” end up consuming large amounts of money on activities and expenditures that are of marginal value.  Example: brochures that nobody reads and advertisements that nobody understands.
• How to Cope: Top management must measure marketing in a quantifiable manner, with every measurement tied to specific activities of the marketing group.  For example, if marketing runs an advertisement, it MUST include a way to measure response in terms of profitable revenue.

MYTH #3: “Marketing Drives Sales”

• Who Says It: Marketing Managers Why They Say It: They’re trying to take credit for the work of the sales team.
• Why It’s a Myth: Most marketing professionals have never sold anything.  Therefore, they know little or nothing about selling.  While they certainly can (and will) kibbitz from the peanut gallery, their advice and suggestions about selling are usually useless.
• Why It’s Dangerous: There are few things more demotivating that having an entire group of people running around taking credit for your group’s hard work.  This myth thus drives a huge wedge between sales and marketing, making it impossible for the two groups to work together, except as adversaries.
• How to Cope: The easiest way to fix this problem is to put the marketing group under the CSO or VP of Sales.  Short of this, top management must make it clear to the marketing group that they are there to help Sales, not to tell them what to do.

MYTH #4: Marketing Creates Brands”

• Who Says It: Business Schools Why They Say It: MBA programs are big money makers, and marketing is a popular major within them.  The focus on branding makes marketing seem important, like it’s a way to hypnotize people into buying things they don’t need…. like MBAs, come to think of it.
• Why It’s a Myth: Brands are always a reflection of the product and the experience of buying the product.  The activities of marketing groups, like advertising, PR, etc. can only build on the brand that’s created, not by marketing, but by the customer’s experience with the product.
• Why It’s Dangerous: Every year pointless brand marketing consumes billions of dollars, most of which is totally wasted because they’re not measured in any meaningful way, and cannot be mapped to increases in revenue and profit.
• How to Cope: Pick a brand identity (name, logo, etc.) that makes sense and stick with it.  Then focus on the customer experience, both with the product and the buying of the product.  If you do that right, your brand will take care of itself.

MYTH #5: “Marketing Defines Products”

• Who Says It: Junior Marketers Why They Say It: Most low level marketing activity is lot less fun than hanging out with engineers and pretended that you understand what the “customer” (whom you’ve never seen) actually wants.
• Why It’s a Myth: Most marketing professionals do not have sufficient contact with customers to know what they’ll be wanting in the future.  Furthermore, most marketing professionals lack the expertise in product development to know what’s possible to build.  Therefore, their “market requirements” are usually ignored, and rightly so.
• Why It’s Dangerous: Even when (as is usually the case) the engineering group ignores marketing input, it still takes time and effort to neutralize their influence.  And if that time and effort isn’t spent, then you can end up with “marketing driven” engineering groups that never build anything because the requirements keep changing.
• How to Cope: Get marketing out of the product design business.  Instead, have marketing meet with sales and jointly gather information from the customer base about what they’d like to see in the future.  Then bring the R&D group into the discussion, especially with real live customers.

Why is Samsung and Apple winning when others are losing?

Comment added on Jan 27, 2013 

I have been following this market for over an year now and you can see all my blog posts below. It seems I was right about Samsung being on the right path !

The last quarter figures for 2012 show that there were only 2 major winners and it is clear to me how they won : Samsung and Apple. This was mainly due to their focus on smartphone shipments reaching tens of millions of units. They were innovative and won by proactively anticipating new products that will be needed to cater to new age needs and being ahead of others in bringing them to market. What a deadly combination of 5 things : true examples of risk takers, entrepreneurs and mobilizers. 

1. insightful  understanding of the emerging needs of the customer which could not have been visible to the companies doing standard market research by asking customers and the trade
2. risk taking ability of the companies to bet on an unsubstantiated insight in order to undertake development of products
3. more risk-taking in developing a range and a steady sequence of products that would make a deep impact on the market
4. managing risks associated with developing products based on emerging technologies which are not yet proven
5. having an outstanding speed-to-market.

At the other end of the smartphone market, two Chinese firms - Huawei and ZTE - came into the "top 5" list of smartphone manufacturers. Who got squeezed ? It is RIM (Blackberry), LG, HTC, Nokia. The ones to get squeezed were neither risk-taking innovators nor were they efficient manufacturers.  Huawei grew by 90% year-over-year, allowing the company to capture 4.9% of the market.

Of course, at the top end too there is a tussle between Apple and Samsung as they are encroaching on each other's territories and also fighting court battles. Apple has introduced a low priced iPhone last month whereas Samsung has introduced pricy formats like Note which have larger and brilliant AMOLED screens. But I am not addressing Apple vs Samsung issue below.

I wrote this post sometime in October 2012

My student Atul Dubey asked my views  on what should Samsung do now. 

I did some thinking and fishing on this subject including speaking to Divya who manages Tata Docomo store in Pune and my insight is that iPhone is bought not entirely for the features of the iPhone 5 device. 

There are still many who want to buy iPhone 5 because it is an "Apple". These trend setters want to own the "latest" model of the "trendiest" brand in one of the "most visible personal gadgets" category in the world. Owning an iPhone 5 is a way of defining oneself and telling the whole word who they are!

When a product gets branded, some additional adjectives stick to the physical product and that is why they say the brand is more valuable than the physical product and that is why  branded products are more expensive. In case of the Apple brand, the adjectives that come to the mind are : "top of the line", "best designed", "pioneering", "path breaking". 

Actually, Samsung already is ahead of Apple in India in the mass market (a) in sales revenue (b) in width and depth of distribution (c) in range of products (d) in the share of advertising and store display space. Then where is the problem? It is in a niche market : when it comes to the "movers and shakers" of the market - probably top 1% of the Indian households ( Top 1 million households) - they still  probably prefer to go to an Apple store as compared to a Sony or a Samsung store.

My impression is that Samsung does not need to change its path to "intercept" Apple and dent it. In fact Samsung has been good at finding and placing bets for a long time. They have displayed an uncanny ability not only to spot the "next wave" but to also have the couage to make big bets on these waves : 

• ENTRY INTO CELL PHONES : It is unusual for a household appliances company (with chassis consisting of bulky electromechanical components like motors, compressors, speakers and picture tubes) to enter into personal gadgets market (chassis consisting of densely packed surface mounted components and computer chips). They were the first household durables company to make this transition and bet on the cell phone category in a major way so as to leave their own country-cousin LG behind.
• BETTING ON COLOR PHONES : Who would have thought that in a cell phone category which is essentially a listening and talking device, a display would be important? But Samsung showed a great insight and made big bets on the cell phone being an entertainment device over a period of time and and invested a lot in colour displays. This left their German and Americal cell phone makers like Siemens and Motorola behind.
• FORESEEING THE SHIFTING OF THE BATTLE GROUND : Their latest master stroke was to recognize that the battle in cell phones will shift to software from pure hardware. Accordingly they placed huge bets on the Android operating system. Nokia - working on the assumption that hardware improvements is the way to go - was left gasping for breath and was fatally injured. ( see an earlier blog post at the end ).
• CREATING A NEW MID-SIZE SCREEN MARKET : They created a new screen size called tab(let) which was bigger than a cell phone but smaller than a laptop. They launched a new sub-brand called Galaxy to drive the new market of large sized smart phones and small sized portable laptop screens. 

My feeling is that Samsung is already on the right track and it should not frame their task as countering iPhone 5.  They must frame their task differently. They must see it  is a war based on brand and not a war of products or models. They must aim for a time when the trendsetters - the movers and shakers - would prefer to come to Samsung stores instead of going to Apple stores as they currently do. 

They must introduce a technology in personal gadgets that will become a talk of the town. They have foresight and a good R&D and the task should not be difficult for them. As and when they can do this, it will create a really big bang because Samsung has far more stores in India than Apple.

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I wrote this post in April 2012

A great event - Samsung overtaking Nokia

I have been always fascinated by the cell phones due to technology, competition, fast life cycles and strategies. 15 years ago no one had heard of Nokia of Finland. Within these 15 years we came to a stage where no one in the world can say they have not heard of Nokia. And just when it seemed invincible, came the famous "Burning Platform" speech last year from their new CEO. He said that Nokia was sitting on a burning platform and had to make a choice of diving out into the sea from its place or risk being burnt alive. (You can see the actual speech below in blue font at the very end of this post). Well, well, it has happened far sooner than expected. Samsung has overtaken Nokia and become a leader.

I have been watching the rise of Samsung for over a decade because, as VP of Marketing and Sales at Onida, I competed with Samsung in the TV business. Its rise to the top is an amazing story of correct anticipation, willingness to take risks, and openness to organizational changes.

I remember that 25 years Samsung was a downmarket brand of TVs. My impression is based on the fact that most Indian workers coming back from Dubai carried Samsung TVs. The rest, who could afford, bought Sony. But I must admit I was wrong in my conclusions. Samsung has played its cards correctly since then.They went into mobile market at the right time ( ahead of Japanese and LG). They correctly judged that the next wave in cell phones would be driven by entertainment and content and began making phones accordingly. By the time the world recognized that this indeed was the trend, Samsung was ahead already.

When all handset makers including Nokia were improving their products, Samsung correctly judged that what needed to be improved was the customer experience and not necessarily their product. A few years before others did, they saw that Android System was  capable of improving the customer experience and they were the first to bet on it and launch a big range of Android based phones 3 years ago. That is precisely when the decline of Nokia began.

Last - but - not least - a very interesting story. Around 1995 they appointed McKinsey to find out why their globalization efforts were failing. Crisp diagnosis by McKinsey was "the problem is that you speak Korean in the board room". Within 6 months they inducted global managers in their top management.

I am reproducing below the recent article from MINT in red font and later an old article giving the "Burning Platform" speech in blue font.

 

Samsung now largest mobile phone maker

South Korean firm ends Nokia’s 14-year run at the top; Galaxy phones power Samsung to record $5.2 bn profit

Seoul/Hong Kong: Samsung Electronics Co. Ltd overtook Nokia Oyj as the world’s biggest vendor of mobile phones for the first time, ending the Finnish company’s 14-year run as the global leader, according to an industry study. 

Samsung shipped 93.5 million handsets in the first quarter, 36% more than a year earlier, compared with 82.7 million for second-ranked Nokia, researcher Strategy Analytics said in a statement on Friday. Demand for Galaxy smartphones helped Samsung post first quarter net profit on Friday of 5.05 trillion won ((Rs25,250 crore today), beating analysts’ estimates.

Samsung’s quarterly handset division profit nearly tripled to 4.27 trillion won, accounting for 73% of total profit, and operating margins rose to 18.4% from 12% in the preceding quarter on strong sales of the Galaxy S and the Note phone/tablet, the surprise consumer hit of recent months. The handset division shifted more than 20,000 Galaxy phones an hour in the quarter and contributed most of its operating profit.

Nokia had been the biggest mobile phone maker by shipments since 1998, when the company took over the spot from Motorola Inc. Nokia reported a €1.34 billion (Rs9,300 crore today) first quarter operating loss after handset sales slumped. Both smartphones and low-end handsets declined as Nokia’s ageing portfolio was outpaced by handsets running Google Inc.’s Android. Its handset shipments in China fell 62%.

Last year, Samsung became No. 1 in Europe while Nokia retained the No. 1 position in most emerging markets, Tom Kang, a Seoul-based research analyst at Strategy Analytics, said in a phone interview on Friday. “In the first quarter, we expect Samsung took a lot of market share from Nokia in Asia. China and India were the two biggest markets where Samsung gained,” he said.

Apple Inc. is the world’s third biggest maker of mobile phones after shipments rose 89% to 35.1 million last quarter, according to Strategy Analytics.

Nokia dropped as much as 2.5% to €2.69, the lowest price in more than 15 years based on closing prices, and was trading down 0.6% as of 11.31am in Helsinki. Samsung gained 2.5% to a record 1.374 million won at the close in Seoul, pushing its market value to $190 billion, 11 times that of Japanese rival Sony, though still only one-third of Apple’s, the world’s most valuable company.

“Samsung and Apple are out-competing most major rivals, and the smartphone market is at risk of becoming a two-horse race,” said Neil Mawston, an analyst at Strategy Analytics.

CLSA analyst Matt Evans said in a recent report that “Samsung’s smartphone success in the first quarter was the flip-side of Nokia’s disappointment”.

Nokia, which had long been the leader in the smartphone segment until last year, has suffered a sharp decline in sales since it abandoned its own smartphone operating system and switched to the largely untried Windows Phone. It managed to sell only 12 million smartphones in the first quarter.

The near duopoly in high-end smartphones is unlikely to come under much threat this year or next, according to Bernstein analysts, and Samsung will look to keep that momentum going next week with the launch in London of a third generation of Galaxy S, hoping to boost sales ahead of the summer Olympics, where the group is among the leading sponsors.

“The Galaxy S3’s specifications are expected to be sensational, and it’s already drawing strong interest from the market and consumers,” said Brian Park, an analyst at Tong Yang Securities.

“We anticipate very strong demand for the Galaxy S3,” Robert Yi, Samsung’s senior vice-president and head of investor relations, told analysts. “When there’s strong demand in the market, we don’t necessarily need to spend a lot of marketing dollars to promote sales.”

Samsung also regained the lead from Apple as the world’s biggest vendor of smartphones in the first quarter. Smartphone shipments surged 41% in the quarter, the analysts said.

Finland-based Nokia faces a key test this week when chief executive Stephen Elop finally unveils a plan to reverse a sharp slide in the fortunes of the world's number one mobile phone maker. Nokia holds a strategy and financial briefing in London on Friday, two weeks after it reported a 21 percent slump in fourth quarter earnings and Elop promised: "The industry's changed and now it's time for Nokia to change faster." Here is a copy of the text from an internal Nokia memo from the CEO Elop to the company's employees. Here's over to the letter which several analysts have termed 'brutually honest'.

Hello there,

There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform's edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.

As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a "burning platform," and he needed to make a choice.

He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times - his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a "burning platform" caused a radical change in his behaviour.

We too, are standing on a "burning platform," and we must decide how we are going to change our behaviour.

Over the past few months, I've shared with you what I've heard from our shareholders, operators, developers, suppliers and from you. Today, I'm going to share what I've learned and what I have come to believe.

I have learned that we are standing on a burning platform.

And, we have more than one explosion - we have multiple points of scorching heat that are fuelling a blazing fire around us.

For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.

Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally - taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.

We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough. We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, "the time that it takes us to polish a PowerPoint presentation." They are fast, they are cheap, and they are challenging us.

And the truly perplexing aspect is that we're not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem. This means we're going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we've lost market share, we've lost mind share and we've lost time.

On Tuesday, Standard & Poor's informed that they will put our A long term and A-1 short term ratings on negative credit watch. This is a similar rating action to the one that Moody's took last week. Basically it means that during the next few weeks they will make an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these credit agencies contemplating these changes? Because they are concerned about our competitiveness.

Consumer preference for Nokia declined worldwide. In the UK, our brand preference has slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5 people in the UK prefer Nokia to other brands. It's also down in the other markets, which are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and on.

How did we get to this point? Why did we fall behind when the world around us evolved?

This is what I have been trying to understand. I believe at least some of it has been due to our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally.

Nokia, our platform is burning.

We are working on a path forward -- a path to rebuild our market leadership. When we share the new strategy on February 11, it will be a huge effort to transform our company. But, I believe that together, we can face the challenges ahead of us. Together, we can choose to define our future.

The burning platform, upon which the man found himself, caused the man to shift his behaviour, and take a bold and brave step into an uncertain future. He was able to tell his story. Now, we have a great opportunity to do the same.

Wholesalers - are they your friends or enemies ?

Wholesalers are spirited, ruthless and self appointed re-sellers of products they choose to deal in. Product marketers must carefully weigh how they wish to align themselves to these Robin Hoods. If they become your complementors, they will help you grow. If you cross swords, they can bleed you - sometimes to death as the example of a Chennai based CTV company shows. 

DEPENDS ON WHO YOU ASK

Who are these wholesalers - and what do they do? The question gets different answers from different people. At worst, they are mercenary, parasitic, self-willed and exasperating. At best they are symbiotic complementors, entrepreneurial and helpful.  Just like Sherwood's Robin Hood - depends on who you  ask.

At their best, wholesalers create new sales opportunities for your products on their own; thereby boosting your sales volumes and shares. At their worst, they are parasites who will  subvert your distribution set-up and take you to the cleaners. In the marketing textbooks and in the Business Schools, they are neatly tucked away under a classification called  “channel partners”  but you must speak to the foot soldiers of marketing to get the real picture.

THE SAD EPISODE IN CHENNAI

Can you believe that a single wholesaler was responsible for ruining a big colour TV firm based in Chennai during the 80s by falling into his trap? It is a true and interesting tale of what a wholesaler can do to a company. This wholesaler, based in the busy T Nagar locality of Chennai, must have initially seemed like an angel to this company when he must have first showed up on the company's tracking system as a wholesale with continuously increasing sales; month after month.

As a reward for this good performance,  the wholesaler negotiated -  and obtained - higher and higher extra discounts on his purchases. Most of us may not see anything wrong with this. In fact, such discounting is justified by the "Cost to Serve" model. This model says that, since the cost of servicing a Rs 100,000 order is not very much more than the cost of servicing a Rs 10,000 order, the former /  bigger customer deserves to share the cost saved in servicing a large order. However, this model does not  adequately capture the reality of what actually happened in the marketplace for the CTV company.

The wholesaler used these discounts to create his own pricelist for the company's  products in such a way that it was more attractive than the original price list of thye company! As a result, customers who used to buy directly from the company now started buying from the wholesaler. The sales volume, which would have come at the regular price through the dealers through direct transactions, now came indirectly via the wholesaler at a discounted price. The more the wholesaler sold, the less margins the company made.

This was the beginning of the end.  Slowly a stage came when most of the dealers switched to buying from the wholesaler instead of from the company and the company became over-dependant on the wholesaler. One day, the wholesaler became so greedy that the fresh tranche of extra margin he demanded made the whole company unviable. The company refused further reductions in the margin but the company had to downsize its operations. It never recovered and slowly the brand went into oblivion. But the wholesaler prospered. He used the dealer network he had created using the company's products and discounts - to generate  sales volumes for other companies. He built up a large retail chain spanning several cities in Tamilnadu and lived happily afterwards. 

NO-WIN SITUATION ?

We all know the importance of the product, price, positioning, advertising and the distribution but the role played by the wholesalers in making or breaking of the companies has neither been fully analysed nor appreciated. Most of us from the organized marketing industry see ourselves in a no-win situation vis-à-vis these party-spoilers. The principle objective of most wholesalers is to create their own loyal sub-networks - by breaking into your original network - using your own extra discounts against you. In short, they use your money to turn your own dealers against you. A “parasitic operation”!

Some time ago there was an article in the Business Standard describing the success of Whirlpool in India. It said that one of the strategies of the company was to stop the typically white goods style “informal wholesaling” and replace it with FMCG style organized , multi-tiered distribution with clear and transparent pricing. In short, the company’s strategy was to bust the wholesale mafia . From my perspective this is NOT a universal and failsafe strategy.

It would work only if there is a high degree of support given to the distribution channel by way of advertising, brand-building and field force coverage. It is only when you are sure of finding, convincing and driving a sufficient number of customers to your stores; that the stores will “fall in line” and listen to whatever you want them to do - including organized, multi-tier operation, with transparent FMCG style pricing - if that’s what you want !

WHOLESALERS - ARE THEY ALWAYS THE VILLAINS? 

If the above has given you an impression that wholesalers are a problem; let me give you instances where they come across as angels. Like Robin Hood, they are foes of the high and mighty but friends of the ordinary. If you do not have big resources - or if you do not wish to put in such resources - the wholesalers are your best option. Somewhat like Robin Hood, they help the small firms distribute their products while riding on the widespread market demand of big-league items. The wholesalers build their networks by dealing in big-league items, and may sustain and bind these networks by negotiating extra discounts from these big-ticket suppliers but they survive on the profits they make through the margins they get from small and medium league marketers. They have a symbiotic relationship with both the big league firms and mid / small league firms. Without the biggies, they would not be able to create networks. Without the smaller firms they will not be able to make profits.

For small start-ups who know how to make a good and competitive product but cannot afford big-budget marketing; wholesalers may be saviors. The wholesalers can give them access to the networks they have created using the big brands. The wholesale channel is absolutely indispensable even if you are not a start-up but just want to “feel” how a new market responds to your product and pricing strategy without spending much on advertising or your own sales force.

But, even large firms benefit from the wholesale channel. For example, a toothpaste brand with a 5% share of the market can afford to cover only about 300,000 outlets per month but, on the other hand, it may be typically available in 600,000 outlets. How does it get such an extra reach of about 300,000 outlets? Through the activity of these wholesalers of course!

The organized sector - which is the source as well as user of marketing knowledge - considers the wholesales as being on the seamier side of the market and many times get classified as belonging to “unorganised”, "grey" or “parallel” segment. But from my perspective, they play an important role in the marketing of products - and stand you in good stead if you are not strong on resources.

17 ways to market invisible products

It can be difficult if you are asked to market products:

• that the custgomers cannot see / inspect / experience before paying
• whose effect / benefit comes very late or sometimes not at all
• whose outcome is uncertain. 

Examples of such products are

• Life Insurance Policy : you can never see its benefit when you are alive
• Lottery : you know that only a few will get the benefit
• Anti Acne treatment in a beauty salon : benefit comes later, if at all
• Medical treatment of a doctor : you do not know if and when you will get cured 
• Educational course : Will you get a good job and salary at the end of it?
• Consultancy assignment  : will the recommendations be new ? feasible ?
• A longer-lasting paint coat for a car : who will remember how long it lasted ? 

In such cases, you need to market a "surrogate"  

Life Insurance Policy 

• Tell people the large number of customers you have
• Visible and prominent offices
• People and vehicles and evidences are visible and easily identifiable
• People need to feel you are not going to run away overnight. 
• The building should look solid
• Overall aura of trustworthiness

Lottery

• Sponsored by the state government ( UP Government Lottery )
• For a good cause ( For improving irrigation in the state )

Medical ( Say Homeopathic ) treatment of the doctor 

• The degree of the doctor hanging on the wall
• The locality of the clinic
• The quality of the interiors and upkeep of the clinic
• The type of other customers who come to the clinic
• Whether the doctor and employees dress and behave well

Educational course

• The location and look of the campus, buildings and interiors
• The quality of the faculty 
• Other students who come to the same course
• The number and type of alumni who have passed out
• What the employers talk about the course  

Consulting Assignment

• The reputation of the consultant
• The client list of the consultant
• The quality and relevance of the experts that the consultant can provide access to
• The intellectual capital : patents, publications

 Long Lasting Paint for Car

• Certifications provided by expert organizations
• The client list of the company 
• The quality and relevance of the experts with the company

When people cannot see or feel what you are marketing, you need to focus on the seller as being trustworthy. Consider the following 17 ways

1.     Give an impression : number of people are associated with you
2.     Make your offices and places visible and prominent
3.     Make your people and vehicles visible and easily identifiable
4.     Make your buildings look solid : stone, pillars
5.     Sponsored / Chartered by State / Government / Known Institutes
6.     For the benefit of a well known and good cause
7.     Signs of expertise like a degree of on the wall
8.     Your address and location should be respectable
9.     Good  quality of the interiors and upkeep
10.     The type of other customers who come to your location
11.     Well dressed and well behaved employees
12.     What do the ex-customers and ex-employees say about you
13.     Your reputation
14.     Your client list
15.     The quality / relevance of experts you bring to the assignment
16.     Your intellectual capital : patents, publications, magazines
17.     Certifications provided by expert organizations

10 Great Marketing Companies

Steve Tobak is genious : sometimes he is hugely right and sometimes he is horribly wrong. But the feloow is original. The following is his piece. I am merely reproducing it.

This is my definition of marketing : It creates and promotes products (services) customers will pay for. Great marketing does it consistently better than the competition

1. Apple. Apple (AAPL) stands as the one technology company that truly gets marketing. It defines the next big thing and creates game-changers in existing markets before people themselves even know what they want. It doesn't use focus groups or research; Apple is its own focus group. It controls its channel and message better than any company on earth. Not to mention the 1984 Super Bowl, Think Different, and iPod silhouette ad campaigns.
2. Nike. Let's face it: Nike (NKE) is a sneaker business that somehow became the world's largest sports footwear and apparel company, one of the top brands in the world, and a $48 billion S&P 500 component. How? Great marketing: the swoosh logo, "word of foot" advertising, and, of course, sponsoring athletes. I don't know, I guess Nike Just Did It.
3. Geico. The road from the niche Government Employees Insurance Company to 10 million policyholders, $28 billion in assets, and one of the most widely recognized insurance brands in the world, is all about two things: Warren Buffet and marketing. Geico also has some of the best ad concepts on the planet: The Gekko, the Caveman, the little piggy, and my current favorite, the electricity-generating guinea pigs in a rowboat: "It's kind of strange. Such a simple word. Row."
4. Budweiser. There's simply no other way to explain how such a horrendously bad product -- in my sole and humble opinion and with all due respect to anyone who actually likes the stuff -- became an American institution and perhaps the most powerful and successful alcoholic beverage brand of all time.
5. FedEx. Commentators are forever saying how dumb corporate name and logo changes are. Well, they're clueless. As with anything else, name changes range from dumb to brilliant and everything in between. Adopting the viral conjunction "FedEx" allowed Federal Express (FDX) to capitalize on its leadership in express mail while diversifying into ground and other business services. It was brilliant. And its advertising has been groundbreaking, as well.
6. Southwest Airlines. By focusing on the customer, doing things the right way instead of the way they've traditionally been done, allowing its staff to have a little fun on the job, flying short-haul routes to regional airports, and becoming the first no-frills carrier, Herb Kelleher broke the airline industry mold and made deregulated air travel profitable. Southwest (LUV) broke the mold. And not only that, but hey, Bags Fly Free.
7. IBM. I never thought I'd say this, but the evidence is irrefutable. When Big Blue avoided bankruptcy by combining its hardware, software and consulting businesses to become the world's first vertically integrated IT services e-everything company, by creating a ginormous market out of thin air, IBM (IBM) became a de facto marketing company and an awesome one at that. After all, who doesn't want a smarter planet?
8. Adobe. Few software companies survived and thrived through Microsoft's (MSFT) predatory onslaught: IBM/Lotus, Oracle (ORCL), Apple, SAP (SAP), and Adobe (ADBE). Somehow, this relatively small company has come up with products that practically every "knowledge worker" needs to use on a daily basis. It should come as no surprise that its current marketing chief, Ann Lewnes, launched Intel's (INTC) vaunted Pentium product brand and managed the "Intel Inside" program. Also, its founders are great guys.
9. Toyota. By launching the Lexus brand, beating Mercedes and BMW at their own game, bringing "ergonomics" into our vocabulary, marketing "quiet," and making the dealership experience something more pleasurable than getting a root canal, Toyota (TM) became a great marketing company. It also popularized the luxury crossover SUV (Lexus RX), took the world by storm with the Prius hybrid, and aggressively integrated hybrid technology into many of its vehicles. The company that began life as Toyoda Automatic Loom Works in 1926 became the world's top automobile maker in 2010.
10. Samsung. The Korean company has slowly and steadily grown to become a premier consumer electronics brand. It used to have annual strategy sessions where all its top executives got to spend time with the best competitive products they were up against from the likes of Sony (SNE), Nokia (NOK), Panasonic (PC), and Apple. I don't know if it still does that, but from day one, Samsung eschewed the traditional technology-driven Asian model in favor of becoming a market-driven and market-leading company.

7 commandments for getting a better price

You do not necessarily need a better product
to get a better price ! Here's Why ..

But be clear who your customer is. 

Is he end-user ? Applicator? Recommender? Trader? Salesman?

Your answers will change ..

 We all would like love to improve our margins and get a better price from the market but the question is how? Offering a better product is an obvious answer but it does not always work. Your customers are not always in the need of a better product. Then, what are they in need of  that will make them pay a better price? Here is a list ... pick what fits you ! In each case, I have given examples too hoping that some of these will ring a bell ! 

1. Some customers pay more if you provide more FACILITIES
   People visit restaurants not only for good food but also for more parking space. Facilities are in the nature of more space, more specious, less crowded, cleaner etc .  Payment facilities - cash, card,  EMI, lease - are important.Some will pay more for door delivery
2. Some customers pay more for ACCESS to someone they like to interact.
   People visit those exhibitions where they meet the type of people they want to meet.  People want to join those clubs whose members they are keen on mixing with.   People buy tariff plans of those cell networks who cater to their friends.  People become members of the social networks frequented by their friends.
3. Some customers pay more for SERVICE
   People pay more to DHL because of their service of net-enables "parcel tracking service".People choose insurance company only on premium but one which settles claims faster. Lot of market share of Maruti Suzuki is because its service network is wider and deeper.
4. Some customers pay more for HUMAN SERVICE / EXPERTISE / TRUST  
   A doctor which charges more has the reputation of curing difficult cases. A lawyer which charges more has won more cases and is more famous. The same goes for businesses where competency is more important.  Tickets for a known singer's performance are at a higher price.  All of us are willing to pay / wait more for our favorite hair dresser.  Auto-check-in machines exist at airports and yet many wait in queue to see the agent. All of us frequent the same retailer / restaurant where we  are personally recognized
5. Some customers pay more if it gives them the STATUS they seek
   An Arrow shirt has not only better quality but the "A" on the sleeve sends out a signal. Director of Mercedes said; " 25% price is for the car, the rest is for the "star""
6. Some customers pay more for SAVING THEIR PRECIOUS TIME
   Shopper's Stop calls its members to inspect items on sale before others and avoid queues.Vendors with ready stock charge more but you get material fast and proceed ahead. In a money-rich and time-poor world there are many ways to charge higher prices. Pre-cut vegetables, ready-mixes of food, home delivery of foods all are time saving ways.
7. Some customers pay more for having a LOWER RISK
   Samsung sells "extended warranty period" on its cell phones and it has a value! Customers buy steel pipes from Welspun because its quality is already certified by APPA. 

In addition do not forget the TWO UNIVERSAL PRINCIPLES : Customers will pay more for a better VALUE PROPOSITION which fits the customer's needs and wants better - and IF THE CUSTOMER COMES THROUGH CERTAIN KIND OF CHANNELS where the costs of operations are higher like airport outlets etc.
By the way, it has always struck me why the students in the entrepreneurship courses do not think of simple and easy to implement ideas where money is surer, faster and safer. Why do not they think of providing facilities, access, service, expertise, status, risk reduction and time-saving to people?  

4 reasons why your good brand may not be yet successful

Your brand has been put together rather neatly - the design side (like logo, colors, graphics is in place) and the marketing mix side ( Product, Packaging, Price, Promotion) is in place AND YET YOU ARE STRUGGLING  to make a dent in the market? Probably the following 4 issues may have prevented you from doing so....

You may be going against the grain / charter / DNA / destiny of the brand

You may have done market research and benchmarking and spent a lot of money and time on R&D, Product Engineering, positioning, marketing mix, offer and schemes etc. But are going in the direction of your brand's DNA? 

 Look at Apple :  Apple's charter has always been to (a) challenge the status quo (b) emphasize beautiful design (c) make computer devices.... in that order. Apple's following is based on creating this charter.  Apple does not start with market research (where people can tell you what they know but cannot tell you what they dont know) or with benchmarking (of best practice) but they start with their DNA of challenging the status quo (primary DNA) and they enhance the deal by creating beautiful and useful products (secondary) . Apple always markets this mission first and the products come later. From the founder all the way down to the customer, everyone knows exactly why Apple  exists. 

BMW used to make fighter planes and motor cycles for the German air force during the war. They did not know what to make when they came out of war. But they knew how to design and make high precision machines using internal combustion engines and to make them respond swiftly to even the slightest touch from the person driving the machines. Hence came their DNA of "The Ultimate Driving Machine". Their entry into car market was driven by this vision.

Way Forward : Knowing what energizes your key stakeholders, and what you are good at, is fundamental in deciding which markets to serve.

Did you count that different cohorts have experienced you differently

If your company is old, you have created different impressions in the minds of different cohorts because they all have experienced you differently. Let us take the example of IBM.

• People who are over 70 today have experienced it as a electronic typewriter company
• People between 50 and 70 have experienced it as a mainframe (corporate) computer company
• People between 35 and 50 have experienced it as a PC (home) computer company
• People between 20 and 35 have experienced it as a solutions company

As a result of this, any action that IBM takes will be interpreted differently by these different cohorts and IBM must take this into account and the external branding strategy needs to view these different markets individually and  a broad brush stroke - treating all these customers as one - will not work. The same goes for internal branding : IBM is likely to have different cohorts of employees who have experienced the company differently during these times and IBM will need different approaches towards them.

Way forward : tools are available today to segment external markets as well as internal employees.

Set your sights on undervalued and unfathomed markets

Be like a value investor… find markets that are under-valued but have promising growth because if you jump into a highly competitive or shrinking market you may not succeed.  It is better to create your own market.
 
Amazon jumped into e-readers and caught the attention of  early adopters. Though Kindle has not yet been as great as people hoped, there is no doubt that Amazon will dominate the e-reader market

Way forward : the model of 3 concentric circles is a good tool to uncover invisible markets and to see customers which your competitors do not see.  

 Take the case of  Jim Beam. They saw the market for women.  Most of the big spirits companies didn’t give any attention to women, even after knowing 50% of the Vodka market was of women. Their plan was to advertise to the men and the women will follow.  Jim Beam decided to treat women as the primary market and developed product lines like a margarita variety (Skinny Girl Cocktail) that became #1. They did it using a unique flavor and lower alcohol content.

You don't need a different product : so long as your experience is different

Most products are so similar these days that probably the only way to differentiate them is to creating an  awesome user experience.  Your customers must feel that interaction with you is what makes you different.  

Cell phones were all the same till Apple entered the market and  challenged status quo.  This all started with the iPod. Apple floated a minimum viable product out into the market to see how it would be responded to. People went crazy over the iPod so Apple figured that the iPhone, which would cost more to create, wouldn’t be such a gamble. They were right. 

Way Forward : Start by looking at the customers of your competitor and see what is missing from their experience. 

And the nice thing about user experience is you can go after big competitors without having their deep pockets.