4 Ways to decide if you are in wrong market

You will fail if you choose a wrong market.

I hope this is a self evident statement to you that you will fail if you select a wrong market. 

This does NOT mean to say you will succeed only by being in the right market. For that to happen, all the 3 basis of the strategic triangle have to be strong. The 3 bases being choice of the market, crafting of a value proposition and the go-to-market activities .

But market selection is probably the most important. I have seen - and been also involved in - turnaround of the fortunes of businesses only  based only on the principle of market selection. Remember everybody cannot be your customer because you cannot use a broad brush and chase everybody (like all furniture users, all car owners, all word processors, all people needing painting..etc) unless you are very big. For the rest of us you must focus and select only specific group of customers using the 4 principles given below.

Be in the market where you understand what is needed by market

# 1 : where you understand the customers well

• Unless you have a first-hand and insightful understanding of what drives the selected customers to search, sort  and buy things in the space you want to operate in; you are likely to make fundamental mistakes. 
• You are likely to incur costs which your are fond of - rather than those the customers are likely to see as valuable. You must do more of those things that really matter to the chosen customers and less of those things that do not really matter to such chosen customers. 
• In fact your incurring of any cost is justified only through your finding identifying and finding customers who are willing to pay a price for it. No cost, in isolation, is right or wrong... it purely and only depends on whether the customers want it and whether you can get such customers.

 Be in the market where you understand what you need to do

#2 : where you can be competent in the long run

• Are you confident of equipping yourself (machines, talent, offices, dealers, technology, location etc) to cater to the defined needs of such customers  in a better fashion than the options currently available to them? 
•  Are you willing and capable of continually investing in renewing your competence to keep pace with - if not to be ahead of - evolution of the market ?

Be in the market where you and customers can meet on price

#3 : if price is profitable to you & acceptable to customers

• Otherwise it will not sustain your interest in selling or the customer's interest in buying. 
• When customers leave, it puts an additional strain on your business to continuously look for new customers. It costs much more to continuously hunt for new customers than to retain existing customers. 
•  The customers finding your price acceptable and good value-for-money (not necessarily L1 or the cheapest) is the key to retention of the customers and profitable growth of your business.

Be in the market that gives you an opportunity to be what you want to be

#4 : if the direction of market development is OK with you

• If you select a market too small in size, your organization will lose its interest in serving them over the time. 
• If you select a market which is too big, you may find you may not have enough resources to continue catering to these customers and they may begin losing interest in you. 
• It is possible that the kind of technology and talent and infrastructure your customers may demand in future from you is very different than what your own aspirations and inclinations for your business are. 
• If your customers' ways are divergent with your ways, you may head for a divorce down the road and divorces are always painful.

Recipes for Unearthing New Business Opportunities

 

Many businesses wake up too late and do not survive because their executives tend to notice only those facts that confirm their existing belief and ignore those facts that challenges them.

   

Indian Example : In the 1950s there were 3 major radio companies : Philips, Bush and Murphy but all of them failed to make a transition to BWTV business in the early 70s in spite of having the necessary competencies at the back end ( electronic component assembly lines ) and at the front end (the same dealer who sold radios sold BWTV too). A new set of companies came up altogether : ECTV, Dianora, Solidaire, Crown, Televista etc. The story got repeated in 1980s when the Asian Games coincided with the launch of CTV. None of the BWTV brands could wake up in time and a new set of brands came into the market : BPL, Onida and Videocon. What explains this "waking up late" phenomena?

It happens in the US too : Example : From 1900 till 1950s, transatlantic cruise lines transported millions between Europe and the US. In the 60s they were eclipsed by transatlantic flights and finally died. They did not see that they could have saved themselves by going into vacation cruises with most of the assets they already had – but they did not “see” the business. It was left to start-ups to buy the ships and retrofit them and use them for the vacation business.

In text book, business objectives drive strategy which, in turn  drives asset creation. In practice exactly the opposite happens : executives are afraid of junking assets prematurely and seek confirmation that these assets will continue to drive the strategy which will continue to work and create revenue and profits.

Many businesses do not know what their business is. ( From a landmark article "Marketing Myopia" by Ted Levitt) there are many examples of American railroad executives not seeing road trucks as their competition until it was too late. Or, the Hollywood producers thinking that they were in movie business and not seeing the TV industry as their competition.

The future of your business is in looking at periphery. Look at what the small guys are doing.  ( Christensen’s concept of disruptive innovation).  The small guys are servicing customers you do not want or have not seen. Some of these small guys will rule your industry with their business models.

How to avoid the confirmation bias ? I am giving below some points which will enable you to systematically identify opportunities and not get confused.

 

Look for products that should exist; but  don't

“Your Seniors Managers Should Travel More"

Customer survey forms and focus groups interactions can tell you about their customers which they are aware of - and can lead to evolutionary new products. They cannot tell you their needs which they themselves are not aware of which can lead to revolutionary new products! In such cases, direct observation or comparative analysis is useful. "Is there something that the customer wished was there?".  

Japanese do not do much market research through agencies but they do it through their engineers. The case of Honda hatchback.

In the early 1990s, Kate Brosnahan spotted a gap in the handbag market between functional bags that lacked style and expensive and impractical designer bags from Hermès or Gucci. She founded Kate Spade LLC  which produced fabric handbags combining functionality and fashion. They became a success.

Spot Annoying / expensive customer experiences
“Complaints is a gold mine and not a hassle”

Here the focus of your probe will be what are the customers unhappy about with the products, packs, availability, information, process, ambiance, service and people they currently encounter in the market.

Creative analysis of complaints and hunting for imaginary complaints is a gold mine for new ideas.

Netflix was founded  after receiving $40 late fee for a rented videocassette that had been misplaced.

Charles Schwab created low-cost brokerage house as he was fed up paying the commissions of conventional stockbrokers.

Scott Cook got the idea for Quicken after watching his wife grow frustrated tracking their finances by hand.

Re-deploy under-priced resources

“Can same asset / process give better profit?” 

You need to exercise your grey cells intensely where are the opportunities for arbitrage. You must always see everything in terms of "can I utilize this resource to get a better return if offered to a different customer"

Sometimes an asset is underpriced because only a few people recognize its potential.

When a low-cost airline announces its intention to fly to a new airport, real estate investors often leap to buy vacation property nearby as they expect a jump in real estate values.

Founders of Infosys were first to recognize that Indian engineers, working for very low salaries, could provide great value to multinational clients.

Discover new applications; not products

Discover new “problems” for your “solution”

For increasing your sales you need not always knock on the doors of the R&D. You can find out new audiences, applications, reasons, stories.  

Hira Thapliyal, discovered a process called coblation which uses radio frequency energy to dissolve damaged tissue with minimal effect on surrounding parts of the body.  He founded a company to offer it for cardiac surgery but the market turned out to be too small and competitive to support a new venture. Later he found an application in orthopedics where 2 million arthroscopic surgeries are done per year.

When Arm & Hammer baking soda sales were declining, they did not change the product - they found a new application for the same product. Baking soda has the property to absorb food odours. They sold it as a refrigerator deodorizer and met with great success.

Lipton failed in noodles but Maggi succeeded by finding a new customer and application.

See applications your customers have found
“Always learn from customers & non-customers”

This thought is an extension. Very few marketers go out beyond their immediate buyers to observe how the end users use it. Many surprises and lessons await those who do it.

Model of 3 concentric circles : Case of  LG TV in India.

Chinese appliance maker Haier Group discovered that some rural customers were using their  washing machines to clean vegetables. They used wider drain pipes and coarser filters so as not to clog these with and  added pictures of local produce and instructions on how to wash vegetables safely.

This innovation later led to  “washing machine” for making goat milk into cheese. They penetrated rural areas avoiding cutthroat pricing of appliances in cities.

Your industry knows not what works elsewhere
“Keep your eyes peeled for everything"

Be in the market and see what works in other geographies, other audiences and other markets.

Western Union vs Seagate HDD example.

Voltas launched Rasna soft drink concentrate in 1982, the product concept was being sold on the streets of Ahmedabad for several years before ! It is the greatness of Voltas to spot the opportunity that existed in standardizing the concept and then making and selling it on a mass scale !

In 1954, restaurant equipment salesman Ray Kroc convinced McDonald brothers’ hamburger stand in southern California to franchise their assembly-line approach to flipping burgers.

In 1982, coffee machine manufacturing executive Howard Schultz visited a coffee bean producer called Starbucks in Seattle. He tried convincing them to start European style “coffee bars” but when he could not, he started his own coffeehouse chain which was later bought back by Starbucks and became their core business.

Logic of the "illogical Customers"
“Wear their googles to see the real truth”

Stop wearing your own goggles and see the market. In fact look for apparently illogical behaviour and go deep and discover the new logic – which may lead you to a new market.

In Eureka Forbes, when we went international, we saw a great opportunity for selling water purifiers in Indonesia because that is what we were doing successfully in India; but the product did not do well. When an Indonesian came to our office he saw our vacuum cleaners and said the product will sell well in his own country and sure enough it did!

My surmise is that Kellogg in India would have done better if they had entered India with Granola Bar - a product which they already have internationally - rather then entering with breakfast cereals.

Honda entered  U.S. motorcycle market in 50s to sell large motorcycles to leather-clad bikers but without success. Then a mechanical failure made the company recall these models and sell  smaller 50cc motorbike - the Cub. The cub turned out to be better than the father! The company discovered an untapped segment looking for two-wheel motorized transportation.

Source ideas from customers and communities
“Use the community as the developer” 

Crowd sourcing has become popular in the last decade and P&G is following it well. Why not use the community as R&D?

Centuries of social trial and error in India which has produced Ayurvedic and Unani & herbal remedies, a system of classifying foods, grandma's prescriptions, recipes etc ... it is a treasure trove that needs to be explored.

Joint Juice, an easy-to-digest glucosamine liquid, was founded by Kevin Stone, a prominent San Francisco orthopedic surgeon. He learned about the nutrient from some of his patients, who took it for joint pain instead of the ibuprofen he had prescribed. Many doctors might have ignored this or even scolded their patients for falling prey to fads, but Stone recognized he might be missing something. He looked up the clinical research on glucosamine in Europe, where it was the leading nutritional supplement. Veterinarians, he discovered, swore by it, as their patients fell for neither fads nor placebos. He built a business around it.  

Look for products that thrive elsewhere

“Travel the streets of India and the World”

Import successful models from elsewhere

In early 90s, swedish student Carl Svensen-Ameln wanted to store his belongings in Sweden when he went to college in Seattle – to find that  local facilities were full. He studied the storage industry in the USA and discovered it had high rents, low turnover, and negligible operating costs. Yet this industry did not exist in continental Europe. He set up a partnership with an established U.S. company called Shurgard and formed European Mini-Storage. It met with great success.

Search for profitable businesses hidden from the view
“People making big money are hiding from you”

Some of the most profitable businesses are hidden from your view

Goldman Sachs avoided investment management believing it generated lower fees than trading and investment banking. When Donaldson, Lufkin & Jenrette  published its financial performance as part of a 1970 stock offering, Goldman Sachs were startled to learn that fees and brokerage commissions on frequent trades added up to a highly profitable business. Seeing this they expanded into managing corporate pension funds, and aggressively built its business.

Selling High End Services Through Customer Dilemmas

The technique of  differentiation based on some elements of "marketing mix" - product, price, place, people, process, or physical evidence, does not work well in high end services. 

That is where the technique of selling based on customer's dilemma comes in. A dilemma is defined as a choice among options that seem equally unfavorable or equally favorable. Dilemmas are not problems - because problems have solutions but dilemmdeas do not.  Dilemmas are not solved but resolved - by properly weighing competing options.   

WHY THE STANDARD POSITIONING DOES NOT WORK?

If you sell your service as a solution to a problem, the client may say “I can do it better myself" or "I know someone who can do it as well as you". But say the same thing as an answer to his dilemma and he may get interested. 

Service : Outplacement
Say : "We help managements (with the dilemma of how to ) fire one of their friends.”

Positioning based on dilemma captures several messages at once. It conveys what you do and also the special way in which you do it.  

Service : PR
Say : "we help companies develop communications for situations where communicating facts is a risk but not doing so is also a risk". 

Service : Financial Planner
Say “I help executives who don't trust experts but are simultaneously afraid that the world is complex and they must act under advice otherwise they may forego  opportunities.  

 
Service : HR Consultant
Say : "We help clients who do not know whether to take a rigid approach to treating talent and see their best people leave or whether to treat people on a case by case basis"

Rules and Tools for "selling" complex & expensive B2B solutions or products

The "sales funnel" approach advocated in most sales management books ( prospecting, planning, contacting, presenting, overcoming objections, closing, transacting, delivering. commissioning and collecting) works only under those circumstances which have following 3 conditions present : 

1. the selling situation is P2P (Person To Person)
2. the customer in front of you understands his need
3. whatever you are trying to sell already exists 

What about rest of us who are in charge of selling complex , customized, high value solutions and products - like projects, offset printing machines, industrial air conditioning plants, call center services to foreign clients, the idea of including your group of publications in your client's media plans, ERP systems, pitching for a new client account in the advertising business  etc ..? 

THE APPROACH YOU NEED IN THESE CASES IS ALTOGETHER DIFFERENT.

• Before anything else you must understand the difference between business development and selling. Business Development is the coldest of the "cold call" situation - meeting a customer who you think can benefit from what you offer - but he does not know it and has not even thought about it. In short, in business development you meet a customer who is not searching - even 1% - for a solution, vendor or product. He does not have intention, organization, specification, RFP or a budget for what you are trying to sell. The business development is the most demanding selling situation. It is like winking at a girl in a dark, she does not see it !  
• It is therefore needless to say that you should not begin such contact by talking about your products, features, prices or terms. None of these make sense to the kind of customer we are talking about. He has not thought about the need, let alone the solution that will address the need. He needs to be sold about you first, your identification of the need secondly and - if you successfully cross these two filters - you will come to the stage of selling features, price and terms at the last stage.
• In such situations - even if a client has RFP (Request For Proposal) ready, you must assume - although you should never say it - that the client does not clearly know what he needs. At the most the client may know a few "symptoms" and “pain points” but he has not clearly know what his needs are and how to specify the solution that will satisfactorily address those needs. Of course, a client who has an RFP is better than a company who still has not reached the RFP stage. All that I am saying is do not treat an RFP as gospel; it is a starting point. The clients will love you if you find and suggest a serious flaw in their RFP. It will establish you as an expert. 
• Your actions under this type of situation should be to
• demonstrate you are an expert and also trustworthy
• show you have the inclination and technique to partner with the client
• to stimulate client's thinking through questioning and position you as an expert
• help the client create solutions which he alone could not have thought of

The model to use here is not "sales funnel" but "DDDD loop" which consists of Discover, Diagnose, Design and Deliver. In conventional selling a salesperson starts with a product which is already designed for a known target market and his task is to present the product interactively - in the light of the need of the customer- so that an order can be obtained. In short, the emphasis of the traditional selling is on salesmanship. On the other hand, a sale of the kind we are talking about is a combination of marketing and sales put together : it is first understanding the need of the customer, figure out what he wants, configure it for him and only then  begin selling it. The people who succeed in project selling therefore are 

1. who diagnose the client needs by discovering through questions and facts
2. who use rational and consultative approach to come to a conclusion
3. who let a customer realize his cost and pain without hurrying him 
4. who help a customer in arriving at a solution.

The pitfalls to avoid in such situations are

1. Do not make premature and speculative suggestions and presentations
2. Do not proceed without customer take co-ownership at all the steps
3. Not to tell customer it is not a plug-in product; he too will need to change his ways
4. Not to check if the customer has an immediate reason and resources to change 
   

True? A "tailored suit" is a product & a "Vehicle Loan" a service ?

A marketing eye sees things differently than a government economist. Economics data of the government shows a suit to be a product because it is tangible. They classify a vehicle loan as a service because it cannot be touched. But this is superficial ! The way the marketing eye sees it , the "litmus test" of service is not its tangibility but it is asking yourself the following 3 questions sequentially 

1. What is the main value a customer is seeking 
2. This value cannot be inspected / experienced by a customer before buying 
3. The source of this value is hidden in a given person or an entity

If your answer is "Yes" to both "2" and "3" you are surely talking about a "service". Even if what you are selling is tangible. There are many examples that come to my mind : a photo frame of a god is tangible but the main benefit the customer expects to get from it is to bring good luck. It cannot be inspected or experienced and is a hidden quality. The value comes more out of faith. You must use the principles of service marketing if you are marketing photo frames of gods.        

If you apply these criteria, it turns out that a tailored suit is largely a service whereas a vehicle loan is largely a product. 

TAILORED SUIT : The main value you expect from any suit is that it should sit well on you and that it should make you look good.  This main value does not come either from using good materials or a good sewing machine – it comes from the quality of craftsmanship hidden in an individual tailor. A good tailor knows how to measure you, how to advise you, how to cut the fabric and how to adjust the fit at the time of the trial.  Therefore a tailored suit is more of a service : it is people dependent, customers will pay a good price for the right person and it is difficult to scale up. Ability to scale up is another important criterion of service. If a tailor is doing good business in a location, you cannot fund him and ask him to start 10 tailoring shops. The crucial ingredient is a talented tailor – how will you recruit or develop 10 tailors for these 10 shops?

VEHICLE LOAN : The main value you expect from a vehicle loan is a good interest rate, suitable repayment terms and an easy documentation requirement.  These main values can be easily pre-inspected. Besides, the source of these values is not some qualities hidden in some individual person. Therefore a vehicle loan is more of a product and this is reflected in the fact that it can be quickly scaled up. A vehicle loan scheme successful in one city can be rolled out to hundreds of cities nationally within a week by briefing the local staff and by advertising.

Strange are the ways of the Marketing Eye.

A "Narrowly focused" e-marketing approach is becoming more profitable

The internet is already huge ( Google estimated the size to be 5 Billion Gb data in 2008 ) and becoming more so with several billion pages getting added every day to the "cloud". Over a billion people are connected to the net and 500 million surf at least once a week. You and I probably are among the 100 million who are on the net at least twice a day.

Consider the fact that people now can connect to the net in an instant - by just looking at the screens of their smart phones - not to mention push mail devices like Blackberry - which deliver e mail in your pocket phone - whether you want it or not - because it is connected to the net 24x365.

The time has been indeed ripe for the social media to appear : Twitter, Facebook and Linked- to save us from the onslaught of the trillions of pages of content on the net and help us to filter, follow & befriend only those we like to. People increasingly want to  exercise a personal control on what I want to hear and from whom.

Marketers - used to sending generic e mails - using mail-merge and auto-send programs - are at best losing an opportunity to engage customers on the personal level that those customers now expect - and, at worst, they run the risk of being seen by their potential customers as "spammers". Once your customers see you as  a spammer, your mails can actually frustrate them, damage your brand and reduce customer lifetime value because you are losing access to your market : they dont want to read you anymore. Every un-targeted and irrelevant message is a reminder to them that you neither understand them nor care.

For the last few years data mining has evolved to enable you slice / dice data to reveal patterns that will aid your decisions - and the next orbit of predictive modeling is just round the corner - which can identify  customer groups 

• who will buy (or renew) in response to a campaign - who otherwise would not have done so
• who would have bought - whether or not the campaign ran
• who would never buy - even with the campaign
• who hate being contacted 

This will allow you in future to focus efforts only on narrow and specific groups which will not only reduce the cost of  your outreach but it will also help  reduce your cost of fulfillment  as it will avoid your giving away  incentives to customers who would have bought anyway - at full price.

Pricing - why do you assume that people are different from what you are ?

Despite what the common sense would tell you, the fact is that we all act stingy on things we need  but don't really want. Conversely we are generous on  things we want - but do not really need.

That is why a customer may prefer to spend 3 times on a BMW than a Kizashi which is almost as good. But when it comes to disposable ball pens, the same customer may choose a Rs 5 ball pen over Rs 8 !

I have always believed that you should generally not under-price yourself for premium, luxury products. In fact you should raise prices! How many know the case of the famous Tag Heuer watch brand : it did not sell well at popular price so they raised the price to make it exclusive and the rest is history.

Whenever you are tempted to lower your price compared to your rival X because his brand awareness and value is more,  ask yourself if you would rather let a prospect walk away saying "I wish I could afford his product" OR " If the price is what it is, I wonder if the product is really as good as I thought it was"?"

Ask yourself - is your shirt the cheapest you could find? is your vehicle the cheapest available? in fact almost nothing that you purchased in the last 1 year was the cheapest in that category. Then why do you assume that the rest of the world is any different from you?

7 Ways to sell more even if your product is the same as that of your competitor

You don't always need to have a better product to compete; and sell more.... 

1. Even if your product is the same as your competitor, you can still sell more by making your  product available to the customers where your competitors’ product is not available. Identify where your competitor’s product is not available – but where the customer would appreciate it – and you score over your competition. This is true particularly of convenience products like toothpastes and soaps because people must find them without walking too much. The same applies to impulse products like soft drinks, confectionery, eatables, affordable fashion. How would customers buy unless they see it prominently. My friend Jagdeep Kapoor says; “jo dikhta hai woh bikta hai”  
2. Even if your product is the same as your competitor, you can still sell more by delivering it to customers where, when and in quantities they require. For products which are heavy, cumbersome or risky to carry, this works. These days, where walking or traveling is becoming increasingly difficult, would offering to deliver helps? My friend Jayesh Ravindranath says; “we recommended to Dubai based retailer Choithram that a kiosk be put after the checkout counter so that anyone who does not want to lug the goods along with her can have them delivered later when she wants it by paying a small fee and leaving them at the kiosk”. Even in B2B selling, customers who are space constrained will appreciate more frequent deliveries in smaller lots. The customer will save a lot of space and will pay you for it by giving you a better price.
3. Even if your product is the same as your competitor, you can still sell more by providing financing to your customer through a various schemes like loans, hire purchase, EMI etc. This is true for big ticket items like cars and expensive consumer durables. My friend Sundar says, “An LCD TV at a price of Rs 60000 is a very different “product” than the same TV at a down payment of Rs 5000 per month and an EMI of Rs 3000 every month.” The market expands dramatically many fold when you provide finance - many more customers can now afford to purchase it.  
4. Even if your product is the same as your competitor, you can still sell more by if people are more aware of your product. This is particularly true of fancy, novel products and un-needed products like fashion, novelties, curios, small and big luxuries, insurance policies etc. Your customers tend to buy them when they become aware of them though ads, showrooms, window displays or sales pitches. My friend Vikesh Wallia once said; “a large display window of a department store on the high street of Pedder Road went for a song whereas an outdoor sign board of the same size near the store went at several times the price”. The difference was that the signboard went from the advertising budget of the Product Manager through an ad agency whereas the compensation for the window display went from the display budget of the area manager through the distributor.  In the insurance business I know many customers who rue buying a particular policy because they were not aware of what was the appropriate policy for them. There are literally millions of products out there on the shelves but the customers can keep hardly 3-4 alternatives in their mind for every product category they are likely to buy. This is called as "consideration set" of each customer. If you are not in the consideration set of a person, it is highly unlikely that she will buy your product. She does not know it exists!
5. Even if your product is the same as your competitor, you can still sell more by educating and  updatingThis is true for situations where the customer does not know that she has a problem, or that there is a solution or how to access and use the solution. Suresh Goklaney of Eureka Forbes says; the customers. “when we launched vacuum cleaners, people were not aware that the millions of dust mites hidden in carpets, upholstery and curtains lead to respiratory irritation of house members. Or, when launched AquaGuard water purifier, people were not aware that 80% of the diseases in a tropical country like ours were due to water borne disease-carrying bacteria. The biggest task was to make the customer aware that she had a problem using educational approach and demonstration. After that, the product sold itself in most cases.” I know of a printing press owner who was eternally grateful to a sales executive who educated him that,  instead of buying a new offset-printing machine costing several crores, he could purchase some balancing equipment and change his layout to increase his plant capacity at only 20% of the cost of a new machine. The printer never ever questioned the quotations or prices of that sales executive after the episode.     
6. Even if your product is the same as your competitor, you can still sell more by providing expertise to the customer and help him diagnose the problem and suggest a solution. This is true of situations where the customer does not really know how to define the problem and evaluate a solution. My friend Satish Menon builds houses and says, “a customer was so fed up of water leakage during monsoon in his flat that he was seriously thinking of selling it off. I spent half a day investigating it and found that the holes drilled to drive nails in the neighbor’s external wall were  responsible for the leakage. He was happy to pay me 3 times the price I was really expecting.” 
7. Even if your product is the same as your competitor, you can still sell more by helping the customer to install, fit and commission it. This is true of products which need to be connected, installed, fitted and commissioned at site. This is normally true in B2B businesses where plant and machinery is bought by the customer in bits and pieces from different vendors but needs someone to put it all together and make it work. Even in B2C situations, architects, interior decorators, engineers etc work in this fashion. Customer always pay good price to people with good reputations and good work to show off.

Why should you care for services if you make only products?

If you sell products, you may be looking at your Profit & Loss statement - and seeing a lot of manufacturing costs sitting on it - and may be coming to the conclusion that you are in "Product Business". 

But there is a different perspective. The fact is that your customers use your products along with a lot of services and it is quite possible that they may be buying these services from elsewhere. Your sales and profits can actually improve if you recognize that your customers' satisfaction comes out of a combination of your products and someone else's services. 

Let us say  you  are  making  and selling diesel  engines. Does that mean to you that you are in a "Product  Business"?   Banish the notion and see what  your customer  is buying and you  will realize  that  he  is  almost always buying  your  product  along with some services . For example, your  diesel engine will not get sold to a fisherman for his boat unless there is someone to explain to him what type of engines are available, which of these are suitable for his needs, why a specific model is better, answer his queries, to take down his order, to deliver  the engine, to help him install it,  to be there to take his call in case repairs are needed, to go and repair it…etc . All of these are services ! Without these services your engine will not sell.
 
It is possible you do not see the service delivery activity on your P&L account because you have chosen not to undertake the service directly - instead you may be paying the trade (or someone else)  to conduct the pre-sales, sales and after-sales service activities for you.  It may not be on your P&L account but it does not mean you are not responsible for the service delivery.  As far as your customers are concerned, you are responsible for the service because you are selling to them under your name and hence must be responsible for all the services they need to purchase, install and use your product. Many companies see the service as a hassle, an activity that generates nothing but complaints. They prefer to operate manufacturing in one central location where everything can be planned and controlled nicely. Service is not so nice. It is  spread-out, demand for it is unpredictable and it is very difficult to please the customers and also to retain and motivate trained employees. But, when it is becoming increasingly difficult for marketers to differentiate their physical product, service is emerging as the next frontier.
     

A LOOK AT HUL THROUGH ITS P&L LENS

But let us go back to our original thread : why do companies remain under the notion that they are in "Product Business" ? Let us take the example of Hindustan Unilever Limited. Most people, including probably the company executives themselves, may be under the impression that HUL is in “product business”.

Their  P&L shows that ,for the 12 month period ending December 31, 2007,  its  Income   was Rs 14106 Crores and its  Operating  expenses were  Rs 11797 Crores . The accounting policy of HUL shows that sales are net of taxes and also net of the trade commission paid - generally 8% to the distributors and 12%  to the retailers. Let us  recast the P&L account of HUL from the customer perspective and it will be seen that the turnover of HUL is, at consumer prices, actually Rs 18760 Crores and this pie splits as follows.

Trade Commissions :  Rs   3250  Crores ( Service * ) : 17% of consumer spending ( Rs 18760 Crores )

Taxes :  Rs    1400 Crores ( Government )  :  7% of consumer spending

Materials  :  Rs    7414 Crores ( Bought out ) :  40% of consumer spending

Machine  Depreciation : Rs  138 Crores ( Book Charge ) :  1% of consumer spending  

Services ** :   Rs    4409 Crores ( Service ) :  24% of  consumer spending

* service to the consumer and trade is compensated by way of commissions

** employees, ad & promotion, freight

In other words, when consumers spend on HUL products, 80% of it  gets  almost equally split  between  buying of services and buying of  materials : HUL is as much a service organization as a product organization.

The misconception that HUL is in “Product Business” comes from the narrow interpretation of what costs are seen on the books of HUL. What is missed is the fact that HUL’s products will not sell unless they are widely available, widely seen  and widely known. HUL has to do all this - it has no option! But HUL does not do this under its own banner - but gets it done through their sales force (which is on their P&L ), their distributors, their retailers and their ad agency. During the year under discussion as above, they incurred Rs 3250 Crores of trade commissions and Rs 1400 Crores of advertising – a whopping Rs 4650 Crores worth of services - and they do not include other services like travel, sales force salaries, sales offices, godown rents etc. If they too are taken into account, the figure will come close to what they are spending on manufacturing activities.

Ultimately it is HUL which is the wellspring of the service activity : the sales force which contacts its distributors which appoints and services them, the salesmen and delivery boys of the distributors who contact the retailers and sell to them, the merchandisers who put up the shop displays, the billboard contractors who put up HUL ads on their sites, the ad agency which creates ads and releases them in media. They are all  services.

Whys is this important? Because many companies are acting under the wrong notion that they are in the "Product Business" whereas, in reality, they are - and should be acting as if they are - in "Service Business".  Is there a difference in these two in terms of action ? Yes - and huge !

"Product Business" people tend to get occupied with materials and machines and related stuff like sourcing, purchasing, plant layout, supply chain, cycle time, down time, preventive maintenance etc. "Service Business" people tend to get occupied with things like organization, competencies, motivation, performance tracking, training, culture etc. 

Those who think who are in product business must learn to go through the following SARP sequence to understand what business you really are in

• what are you selling ( vacuum cleaner )
• what application your product enables (cleaning )
• what result comes form the application ( good impression )
• what payoff is acheived in the end ( favorable customer perception )  

You understand what business you are in only when you can answer all the 4 SARP questions.  

 

None Returns to tell us of the Road ...

There is no shortage of theories. But what an executive needs is to be able to apply the theory to his specific context. For example, in sales management, the royal road is to be able to sniff out people with good selling ability and then hire them. Many travel on this road but not many have left behind a road map. This is what happened to me when I followed this road... 

Is it not strange of the many who,
Traveled before us, the door of darkness through
None returns to tell us of the road
Which, to discover, we must travel too.
( Omar Khayyam)


I had just joined Eureka Forbes as the Head of Marketing in 1998. Our large sales force of over 4000 people - operating out of over 150 offices in 90 cities of the country - was considered to be a great tool of our marketing. And I was keen to learn how to improve it  further. The annual “Silver Circle Club” for the elite 20% salesmen at Goa in 1999 was my first opportunity to observe them. I learnt an important lesson there about selling qualities among people.

In Eureka Forbes we always assigned a very high importance to our front line sellers. We never called them  as salesmen and instead fondly called them as “EuroChamps”. In the annual “Silver Circle Club”  the  top  EuroChamps were taken every year to an exotic tourist place in India and given a time of their life for 4 days. They were put up in five star hotels, had a  non-stop party during this entire time,  were treated like royalty in great style and all their bosses would be in attendance at that time to serve them and help them enjoy - including the CEO of the company. No expense or effort was spared.  The entry to the club was by qualification only. The EuroChamps had to achieve special sales targets for 7 continuous months to qualify to come to the club.

The managers too loved the club.  The club was a tool to get them to achieve a large part of their sales target. All they had to do was to drum up sufficient number of EuroChamps under them to enter the club. After that the aura of the club - built up over the years - worked its magic into the sales force. Being present in the club had assumed legendary proportions in the sales force because it was a sure way to hobnob with the managers and get known to them. Most promotions took place from among those who were regularly seen at the club. Not being in the club was a big let-down. 

It was my first Silver Circle Club at Cidade de Goa in 1999. I  had an idea of conducting a survey to capture the profile of these highly successful EuroChamps to see what drives them. I designed a simple questionnaire, put a serial number on each, distributed these  among all the rooms  and announced that a raffle will be held the next day based on the serial number. Most submitted their filled forms the next day. When we analyzed the data after coming back from Goa, there was a shock waiting for us. The elite of our sales force was less educated than the rest of them who were not so successful. Some of the best EuroChamps were not even graduates!  Did it mean that less educated the person, the better he will be in selling? That is what the  textbooks would have use believe.

I remember discussing this with Adil Bhesania - my colleague from HR who had just joined us from Coke – to make sense out of this seeming anti-correlation between education and selling ability. After many discussions we formed a working hypothesis – which I still believe is true – that our education system is largely based on mathematical, logical and linguistic ability, and does not impart, nor evaluate, the selling ability of a person. We both were excited because till that time we were short listing candidates for front line selling positions based on their educational qualifications. The simple survey showed that educational qualifications were not really the qualifications to look at for a front  line selling job!

We were convinced by now that we were on to something big because we had a big problem of having widely varying recruitment standards because our 175 offices in 90 cities interviewed virtually every day. Very few of these offices could afford  its own HR officer who could assist in interviewing process. In 90% of the offices the recruitment was done essentially by the executives from the sales operations function.  Both Adil and I  began looking for a “test” or a “scale” that could be administered to all aspirants uniformly in all locations. Our aim was to take more people into the sales force based on their selling ability and not based on their educational qualifications!

We searched high and low. Many consultants were will gave us "gyan" about motivation and organizational behavior. But no one really came forward to give us what we wanted which will enable us to administer a test uniformly at all locations to sniff out people with selling ability. We had given up the hope of finding a simple solution when we happened to meet one consultant. He not only offered to suggest a test but also explained very simply and convincingly what does a selling  ability consists of. His name was Harish Shivdasani and he was a psychiatrist by training!

We did not believe him at first. Then Adil came out with a brilliant idea and - to our surprise  Harish agreed to be subjected to our acid test. We told him we will buy the scale from him provided his test could sniff out best salesmen from a random group. We hired a hall and gave him and gave him a mixed group of 40 persons - 20 of them were Silver Circle Club members and 20 were not. And nobody knew who was who except us. Both of us were really amazed to discover that more than 80% of his choice - based on the test scores - was correct. His test could indeed distinguish top salespersons from those who were not. 

It is another story of how we bought the scale from him and wanted to deploy it across the country. It was an interesting experience for us to practice our version of "scientific sales management". And it furthered my belief that a simple glimpse of insight, validated in your own context, is better than being lost in the temple of a comprehensive theoretical model. 

This I know of the one true light
Kindle me to love, or wrath consume me quite;
One glimpse of it within the tavern caught,
is better than in the temple lost outright
( Omar Khayyam )