Sunday, December 12, 2010

Proposals that Win Business -- Some Best Practices

Nearly every industrial requirement of any size is awarded through competitive bidding. If you’re marketing to business, chances are a sizeable portion of your business is obtained in this manner.

Marketing as a function makes a contribution to profits by coordinating the submission of proposals. Any improvement you make in your effectiveness in this area will be reflected on the bottom line. The best way to learn is by doing it, and by winning against the competition. Books and seminars on proposal writing are useful primers.

This post is about several failures I experienced early in my proposal writing career. A few years ago, I found myself thrust into a new job where ALL of the business is won by submitting formal proposals. I found out that I was the “point person” for this activity about one week after I was in the job.
There I am, sitting in my first team meeting, flush with the eagerness that comes with being new and without blemish. We were discussing a major RFQ that had just hit our desks. I was calm, because I was obviously too new in the job to be given a big project so soon. I knew I’d have a chance to learn by watching someone else handle this one.

Gradually, however, I noticed that everyone was looking at me, nodding their heads and smiling. I heard, as if from another world, my boss’ voice finishing a sentence, “… so then you’ll pull it all together, right, Prentis? It will be good training for you.”

“Yes, I’d love to,” came my own voice.

Thus began my journey to discovery.

What I Learned From My First Proposal

I remember my first proposal fondly. It was mush. Nice colors. We didn’t get the business.
The feedback from the customer went something like “your document looked real good and was full of interesting information, but your competitors just gave us a simple clear offer that we could understand.”

I was embarrassed, because this should have been a lay up. The incumbent had lost the account by providing lousy service and inept account management. Only two other companies were capable of serving this customer, and we clearly had the best capability.

One little problem, though. The customer didn’t know we were so good. All they knew was what we told them in our proposal.

Naturally, I felt horrible because I let everybody down. I was angry with myself, and probably not very good company for several weeks. But I vowed to never repeat the same mistakes again. I developed a list of Basic Rules that apply to every proposal I write. These rules are basic common sense, but I find that many marketers I talk to do not find them immediately obvious.

You should follow these rules for every competitive bid.

Keep it simple. Follow the outline of the Request for Quote (RFQ) or Request for Proposal (RFP). Don’t get creative by making up your own format. If the customer needs a roadmap to find the answers to their questions, you’ve hurt your chances. Try to use as few words as possible, because people hate to read proposals. Use tables to summarize relationships between data. Use graphs to show trends. Use checklists or bulleted lists to guide the reader’s eye to key points.

Don’t ask for an extension. Being late only helps your competitors, and makes your company seem inept. Barring some disaster, you should never be late with a response.

Don’t ask questions. If they don’t know how to buy what they want, it’s not your fault. More importantly, you run the risk of getting addition information that may not be shared with your competitors. You could end up bidding on a different scope, and have prices that are higher than the others. When in doubt, bid the cheapest solution, and explain why in the proposal.

Write an executive summary. In the first or second paragraph, summarize what you are proposing in one sentence. On the last page, include a simple cost-benefit table that spells out in financial terms what the customer will spend, and what they will receive in return. Don’t harp too much on intangibles, unless you can express them in financial or operational terms. If the customer doesn’t already know the intangible reasons to make the purchase, it’s not your fault.
If possible, know the customer’s scorecard. Are purchasing managers paid a bonus? Is it based on cutting prices or reducing total costs? Will headcount reduction targets be impacted by your proposal? The more you know about the customer’s scorecard, the better.

My next failure – playing to an empty house

Things went just dandy for a while. I began to get the knack of responding to RFQ’s. Salesman began to call. They wanted my help. What higher endorsement could a marketing manager get!

Then one day, I got a call from Ralph.

Ralph needed my help in the most desperate way. A major prospect had issued an RFP and had somehow left our company off the list. The responses were due in a week, and Ralph didn’t want to be late. Although Ralph was a seasoned salesman, he had been recently assigned to the account and had called on them thee times in eight months.

“Sure, Ralph,” I said. “I’ll be glad to help. How deep is your relationship with this account?”

“Well, I’ve met with the buyer a few times, but really don’t know anyone else.”

“No problem. What do you know about what they’re really looking for?”

“Um, lower prices, I guess.”

“Well, they’ve already got low prices. Why are they going though all this trouble with a RFP and the whole nine yards? There must be some other issue driving this. Did the buyer give you any clue?”

“Well, I can call him and try to find out,” said Ralph, trying to be helpful

“Um, there’s no time for that Ralph. Tell me about the competition. Who’s in there, and who’s bidding against us?”

“Well, they’ve bought from Dirt-Ball, Inc., for about 10 years now, but I really think they’re going to switch because they sent this RFP to everybody, even distributors. In fact, that’s how I found about it, when one of our distributors called me for help.”

This one was doomed from the beginning, and I knew it. Ralph knew it too, although he didn’t want to admit it for fear I would refuse to work with him. He was right.

We had been left off the bidders list because the customer didn’t know who we were. The salesman didn’t have a relationship, and didn’t know enough about the account to understand their needs. Plus, an entrenched incumbent was doing a fairly decent job.

But that was not the problem. These situations occur every day in business. The problem was that I didn’t have the common sense to walk away. I liked Ralph and wanted to be a nice guy.
Knowing when to no-bid is the second rule of proposals. If you aren’t certain you stand a good chance to win, you’re wasting your time. If you’re a typical industrial company, your marketing and sales resources are already thin. Time is your enemy. If I really wanted to be nice to Ralph, I would have declined to work with him on this RFP, but instead flown out to his territory to help him drum up some really good business.

Then there’s this one: “If we don’t bid we’ll be sending them a message that we don’t want their business.”

Well, of course not! But there’s another way to look at this, too. Not being able to win in a bidding situation is different than not wanting to do business with a customer. What the salesman means to say is “They may want to buy something from us later, either on a spot basis or some other non-competitive situation, and I’m not willing to risk closing that door just because we can’t open this one.”

If you work with good salespeople, they aren’t interested in chasing bad business. When they say you need to submit a bid, sometimes you just trust them and do it. A lousy salesman will want to bid everything, and you must make a distinction.

I call this a “forced bid,” because you’re forcing yourself to bid when you’re 100% sure you can’t win. For forced bids, use a very simple standard proposal you can modify in a couple of hours. Usually list prices are sufficient for quoting. But be careful — I’m not saying you should cater to the fears sales. I’m saying you should never bid on bad business, unless you’re working with a top salesman who, after careful consideration, thinks it is worth the trouble.

My next failure – One Man Band

In a short time my success rate improved. Yet, I learned a tough lesson when I got too cocky and thought I could win a piece of business all my own. “Just show me the document,” I said, “I’ve done this so often, I know what to do.” Well, I didn’t know enough, and quickly discovered I was over my head. By then it was too late. Fortunately, it was a fairly small account.

To raise your chances of winning a major piece of business, you must have the right team working on the bid. For small bids, a few people can usually handle all of the tasks. For a large proposal, you will need more people. One way to organize the tasks is break people up into teams for different sections of the proposal. The teams leaders stay in touch daily. This system really works!

Green Team: Sales and Finance. This team makes sure that the offer is priced competitively while also providing sufficient return over the contract. The Green team collects all cost for products and services offered, and prepares the price schedule for the proposal as well as the financial summary for the “Green Sheet” explained later on.

Blue Team: Commercial, engineering, operational scope: The Blue Team is assigned to assemble the bricks and mortar of the proposal. To what extent do you propose do business? What equipment and apparatus must be build or installed, and at what cost? What do you propose to perform in terms of day-to-day service? The Blue Team addresses these questions.

White Team: Assembly. The White Team’s role is taking everyone’s input and assembling it into a single proposal that follows the required format. This team checks to make sure everything meshes together into something the customer will buy. Often the White Team has little to do until the last few days before the proposal is due, then there is a mad flurry of activity and lots of overtime!

Red Team: Final critique and approvals. The Red Team can be a single person—usually a general manager or higher—who reviews the Green Sheet, the executive summary, and any other sections of the document that may be relevant. Final executive approval is usually not required on small bids, but major proposals may require capital investment on your part, and management approval is a must. Setting up a Red Team at the beginning enables you to get the approvals you need in time to meet the deadline. If your team is on the edge of profitability, early involvement by the Red Team is very important.

My next failure — The other shoe, on my head

Sometimes, winning some business can have negative consequences. That happened to me when a large account took 2½ years to make a decision on a proposal. When they eventually selected our company, it was a year later when we looked at the P&L. Apparently, nobody had updated the pricing that was originally submitted, and the customer decided—after the fact—to retain the incumbent at about 40% of its original volume. So, our actual unit sales were about 40% less than projected, and our pricing was about 10% less than market.

The combined effect of these two changes had a devastating impact on the bottom line. When we submitted our results for annual review, management ate our lunch. Why? Because these problems could have been avoided, had we been vigilant.

Which brings us to the internal proposal summary, or what Don Wilson of Allied Signal calls a “Green Sheet.” A Green Sheet is more than a financial review. It’s a request for approval that includes a complete business plan distilled down to its most essential elements. These include the following:
  • Project description
  • Customer profile
  • Competition for this bid
  • Proposal description
  • Bid strategy
  • Risk assessment
  • Financial summary

Key issues and recommendations

The Green Sheet can be an indispensable management tool after the deal is inked as well as before. It contains all of the elements that permit you to “make good” on your promise to deliver profits to the company.

Making your “make good” early

You can exceed your promise to management and be a hero if you:

  • Generate more cash than projected by increasing volume or price while holding the other constant.
  • Earn cash faster than expected
  • Earn what you projected but consume less capital in doing so
  • Reduce operating expenses below projection
  • Reduce WIP and/or finished goods inventory below projected levels

The Green Sheet is a basic information tool that everyone involved with the customer can refer to. Collective focus is what it takes to beat your “make good.”

Whispering In The Wrong Ear

The best time to start working on a proposal is well before the formal request is issued. The more you understand about what the customer really wants, and what they are willing to pay, the more likely your formal proposal will address the core issues the customer wants to solve. If you do this effectively, the customer will ask you to help them write the RFQ.
Put another way, the key to winning a competitive bid is responding to the customer’s problem in the customer’s language.

Understanding the customer’s language has two elements.

  1. Relationship
  2. Positioning

Sales is the “Keeper of The Relationship.” A good relationship enables the salesman to ask tough, probing questions, and garner important contacts inside the company. For example, a salesman can find out the customer’s scorecard only if she has a good relationship. Relationship is itself built upon three elements:

  • The demeanor of the salesman in conducting business.
  • The degree of mutual trust and respect between the salesman and people in the account.
  • The track record of the salesman, as a representative of your company, in delivering on its promises and bringing value to the customer’s business.

Marketers play a crucial role in enabling sales to deliver on item #3, and can make a tremendous impact on sales effectiveness. But that’s another article.

Positioning, the second element, means aligning your offer with the customer’s buying needs.
The alignment that matters for your proposal goes beyond the products and services you offer. It has nothing to do with the customer’s industry grouping, location, or size. It has to do with buying behavior.

Tyler Jeffrey, a marketing manager with Dow Chemical does this exceedingly well. I call his positioning approach “The Dow Method.” Jeffrey has two simple premises:

#1: If you can’t treat a group of customers differently, you don’t have a segment.
#2: A customer’s buying behavior is the most important distinction when you’re trying to sell them something.

The Dow Method groups customer behavior into four categories:

Loyal/Security. These companies sign contracts to assure supply. They view changing suppliers as risky, and will reward good suppliers with volume and price. Manufacturing has a strong influence on purchasing decisions. Incumbents usually win. The scorecard is based on total cost.

Price. These companies sign contracts to manage prices. They view changing suppliers as relatively low risk. They often split their requirement among many suppliers. They reward good suppliers (that is, low priced) with volume. The scorecard is price reduction.

Technology. These companies sign contracts to assure supply. Manufacturing and R&D have a strong influence on purchasing decisions. They view change as relative low risk. Although they reward good suppliers with volume and price, incumbents can lose on product performance issues relatively easily.

Value. These companies can drive you nuts. They want low prices and good product performance. They will pay a small premium for a differentiated product, provided it delivers a measurable value. They may or may not split requirements. They place a high value on relationships, and will reward good suppliers with more volume, last looks, and occasionally, a little bump in price.

The Way to Win With the Dow Method

First, position your proposal with the behavior segment of the company. For example, if your customer is a price buyer, don’t offer bundled services. Unbundle everything, and present the lowest price offer that meets the minimum requirement. Price additional services separately, as options. If your customer is loyal, and you’re not the incumbent, provide copious amounts of performance data, references, and guarantee your service level.

Second, offer services that match the segment. Technology buyers want to know about your R&D support. Value buyers want to know how you can help them reduce their cost of ownership. Price buyers want to know about your pricing mechanisms. Loyal/security buyers want to see services in the areas of logistics, emergency delivery, 24/7 customer service, and so forth.—PH

Sunday, December 5, 2010

What is a Product?

What is a Product?

Source: Jacques Chevron, Jacques Chevron and Associates

Boy! Talk about taking something for granted! I mean, who doesn't think they know what a product is? I used to think I knew what a product was, until someone accused me (quite correctly) of being a "product marketer". What's a product marketer, I asked? My friend said, "It's someone who is so infatuated with his own products he can't begin to see what he's really selling." I was hurt, because I thought I was really hot stuff (can you believe it? Humble me?). I later came to understand what my friend was saying, which can be summarized in a very simple way as follows. --Prentis Hall

A Product Has Three Parts:

The Product Itself

What is the physical product itself like? How big is it? How much does it cost? How does the package look? Unfortunately, this is the happy hunting ground of your typical industrial marketing type. Many, particularly those at higher levels, don't see enough customers and tend to underplay issues which they feel are out of their control. One of the side effects of product infatuation is lower prices, since there tends to be a belief among these types that customers are also infatuated with the product.

The Image

The classic example is the Mercedes Benz. Most people know, deep in their hearts, that a Mercedes isn't worth all that much money. Yet, people feel good when they own one. Owning a Mercedes is a symbol of having "arrived," and of being able to afford a certain standard of luxury. The physical attributes of the car aren't really important to Mercedes buyers. Another example is Tiffany's. People line up and pay top dollar just to buy something at Tiffany's, so they can take it home in one of those blue boxes. When you give someone a gift from Tiffany's, even if it's something you could buy anywhere, it says"I really care about you enough to buy the very best."

The Service

Have you ever dreaded buying a new car because you didn't want to deal with the salesman? Or have you ever bought something and paid a little extra for it becaue you liked the people who sold it to you? Have you ever bought a service contract for a product that was still under warranty? All of these examples show how people make decisions on whether or not to buy, where to buy, or how much to pay based on things that have nothing to do with the physical or the image, but something else entirely.

Sunday, November 14, 2010

Industrial Marketing is Not a Department

A recurring theme in this blog centers around two ideas: (1) that the practice of industrial marketing cannot be taught in an academic setting, and (2) in industrial most so-called “marketing” decisions are made by general management.

Industrial marketers have a tough job because most learning is obtained on the job. Since the key decisions are often made at higher levels, industrial marketers must constantly strive for consensus and coordination among other functional groups. What industrial companies need, therefore, are not strong marketing departments, but a strong sense of market oriented thinking at all levels.

But thinking has to turn into doing, and most non-marketing people don’t really know what to do. The concepts are easy to understand, but when it comes to every day marketing tactics and marketing-oriented behaviors, it’s difficult for most people to make it happen.

Why? Because effective industrial marketing takes place across functional boundaries. It’s difficult – or impossible – for effective tactics to occur unless top managers are committed to making it work, and simultaneously have the savvy to know what types of activities need to occur. In the day-to-day chaos of running a businesses, it can be extremely difficult for any one manager, let alone a core team of managers, to attain the type of focus needed to sustain this effort.

Yet, lots of companies do it, and so can you. Dr. Jim Hlavacek, educator, consultant and author (his most recent book, Profitable Top-Line Growth for Industrial Companies, American Book Company will be reviewed in a future issue) offers numerous examples of how a company can develop market-oriented thinking. Hlavacek says that industrial marketing, as such, cannot be taught. It has to be learned on the job, in real-time, with real problems. Small to medium-sized companies are generally the most successful.

When we observe what these companies do, what we see are lots and lots of “little things” going on that don’t usually happen in other companies. Market-oriented thinking isn’t a massive restructuring of a company’s culture. It’s more like a dawning of awareness that manifests itself in a series of small changes, that develop over time.

Tips for Improving Market-Oriented Thinking

  • Double the number of marketing presentations you make internally. Engage more people in a continuing dialogue about customers and the marketplace.
  • Distribute feedback from customers across the organization. Don’t just talk about your own products, but share what customers say about competitor’s products as well.
  • As soon as possible, find at least one ally in another organization, and begin implanting your own list of “little things.” As you achieve success, document what you have done.
  • Set up a cross-functional team to address these issues
  • Set up a benchmarking visit to another company for your top managers.
  • Send your team to Dr. Jim Hlavacek’s course, “The Best and Worst Industrial Marketing Practices.”

Little things

  • Top management talks to customers regularly
  • R&D people talk to customers
  • Conduct regular competitor quality panels
  • Conduct “competitor game playing,” especially with new entrants
  • Customers called back after purchase
  • Strip one layer our of hierarchy
  • Establish market-focused measures of customer service level performance
  • Formal and informal awards for service personnel based on market-focused measures, not just internal measures like cost, yields and headcount
  • Focus groups to determine key service dimensions of customer service
  • Training of service personnel focused on how to deliver value dimensions, not just how to handle the machinery of the job
  • Hire retirees to read and interpret articles in trade journals, then write up the implications of the articles and distribute to front-line personnel
  • Customer research to understand financial impact of good customer service
  • Require front-line service experience for rotating functional groups
  • Establish a “core curriculum” of roles new manager must rotate through to eligible for promotion, that includes sales, customer service, manufacturing, and engineering
  • Phantom buyers report on customer service levels
  • Top management commitment/involvement to change typical shared values on service
  • Key functional managers spend 2 hours per month conducting customer telephone surveys
  • Non-sales people sell for at least 3 months in the field
  • Functional personnel spend one day/month telemarketing
  • Pay salespeople’s spouses to check competitor products & prices
  • Conduct customer satisfaction surveys
  • Tear down and analyze competitor’s products
  • Benchmark performance against competitors
  • Survey competitor’s customers
  • Top managers spend ½ day per month on the complaint desk
  • Production people meet customers
  • Marketing and sales people work 3 months for a customer or distributor
  • Salespeople spend 1 year in the factory, and must implement a cost reduction or quality improvement idea
  • Interview your supplier about your competition
  • Give away product in trade for feedback
  • Tour competitor’s factories
  • Customers design or name product
  • Educate customers, distributors
  • Calculate your customer’s true costs to purchase, use, and dispose of your products. Compare this cost with the cost of using alternative solutions and competitor’s products.
  • Conduct a monthly informal training/feedback session using Internet web conferencing tools.
  • Understand the features and benefits of your competitors products well enough to sell them — if you had to.

Sunday, November 7, 2010

A Customer Needs Model

This post is provided courtesy of Chuck Sander, president of Underdog Consultants, specialists in Six Sigma implementation at industrial companies. Underdog's website is

Several years ago I attended the Worldwide Lessons in Leadership (Wyncom, Inc. simulcast. My main reason for attending was to listen to one of my favorite motivational speakers, Stephen Covey.

Covey spoke about the leader’s need to “feed” the core elements of human nature: the Mind, Heart, Body, and Spirit. These are also the four basic human survival requirements. Covey maintains that the role of leadership is to ensure that these survival needs are satisfied. The leader must develop the Vision (Mind), Passion (Heart), and Alignment (Body) for the organization. These three items are then centered by the group's Conscience (Spirit). The Conscience is the compass needle that keeps everything on track. With today’s pace of change, a leader cannot tell his employees how to respond to every new situation. They must have the internal core principles to guide them (the Conscience).

I liked this leadership model so much that I wanted to take a moment to see if I could extend it to customers. Let’s call it a type of customer leadership model for the moment.

Today, unprecedented numbers of people have the freedom of choice. Through competition, technology and information, your customers have real choices. Like Covey, I maintain that your customers will base their behavior on the drive to satisfy these four basic human needs. It is your job as a supplier to fulfill these needs since an unmet need provides an opening for your competition. Let’s start again with the four basic human needs as Covey describes them: the Mind, Heart, Body, and Spirit.

The Mind represents the requirements or problems your customers are experiencing. Your ability to satisfy these requirements completes the customer’s need for alignment (Body). The degree of satisfaction your customer’s have with your products addresses their need for loyalty (Heart). All of these factors impact the customer’s inner compass (Spirit) or freedom of choice. I’ll call these the Customer (Survival) Needs: Customer Requirements (Mind), Performance (Body), Satisfaction (Heart), and Freedom of Choice (Spirit).

Covey believes that ignoring any of the four basic employee needs will be disastrous for a leader. If trust is not developed, employees begin to act in their own interest. They try to survive. Likewise for the customer. Ignore any of the components of the Customer Needs profile and the organization creates an unfulfilled customer. The customer will seek to fill this void, and may look to your competition to do so.

But how does you know if this is happening and how do you prevent it from happening?

Knowledge is power. Six Sigma provides the means of knowing when a customer’s needs are unmet and also helps determine how to correct this situation. Six Sigma focuses on three things: Customer, Process, and Performance. This focus aligns with the Customer Needs model extremely well.

The table below summarizes how Covey’s Leadership Model maps to the Customer Needs model and the Six Sigma methodology.


Customer Needs

Six Sigma Methodology


Customer Requirements

Voice of the Customer



Process Indicator



Process Sigma


Freedom of Choice

High-level indicators (market share, retention, etc.)

Through the application of the Voice of the Customer you develop an understanding of the Customer Requirements (Mind). Application of customer focused In-Process Indicators (Body) and calculations of Process Sigmas (Heart) determine the performance against both the customer requirements and estimates of customer satisfaction. This can be used to determine how and why a customer expresses their Freedom of Choice (Spirit).

Sunday, October 31, 2010

Never Leave 'Em Alone on Hold

Time is money. According to facts listed on the *Never Alone on Hold* web site, 94% of all marketing budgets are spent to induce a customer to call and yet only 6% to handle the call once it is received.

Frank Pival, owner of Seattle-based Never Alone on Hold, creators of telephone on-hold messaging systems, tells more:

According to AT&T, the average business receives 128 calls a day. 7 out of 10 callers are placed on hold for an average of 43 seconds. That's one hour per day or over 30 days per year. That's a lot of marketing time. For every 10 callers who hang up, 3 will not call back. And what people don't realize is that nearly 1 out of every 5 callers have bought based on an on-hold ad.

Visit Frank's site to find out more:

Sunday, October 24, 2010

Leveraging Your Intangibles

Despite the problems, tangibles still represent an opportunity to leverage profit, provided they are designed and delivered correctly. The table below illustrates the key imperatives marketers must address when marketing the intangible components of their products.

All of the activities are critical to success. Failing to cover one of the components can have the effect of reducing profit leverage, rather than improving it.

Getting Customers

Keeping Customers

Create Surrogates or Metaphors

· How you present yourself

· How your proposal looks

· Appearance of offices

· Testimonials

· Comparative data

· How you present claims

· How well you understand the prospect’s business

· How service providers present themselves

· Appearance of offices

· Data relating service performance to costs or problems avoided

Tie the Intangible to Something Tangible

· Comparative data

· Data relating service performance to customer’s actual cost savings or profit improvement

Educate the Customer About What They’re Getting

· Head-to-Head comparisons with other providers

· Workshops, training

· Educate customers in the elements of their cost stack

· Regularly remind them of the services you provide

· Regularly reinstate promises

· Demonstrate (with data) that you are keeping your promises, and relate this to the customer’s objectives

· Keep the occasional failure in perspective – prepare customers for a possible failure.

“Productize” The Service

· Develop procedures that ensure consistent delivery

· Manage costs of providing the service

Continuously Improve the Value of Your Intangibles

· Educate prospects about your continuous improvement approach

· Joint process improvement initiatives with your customers – customer led

· Add services that drive you deeper into the customer’s internal value chain

· Face-to-face visits

Sunday, October 17, 2010

Getting Customers vs. Keeping Customers

When it comes to the initial sale, the issue of intangibles can be difficult to manage. In terms of keeping customers, however, intangibles play a different, and far more important role.

For many industrial products, it is the service provided after the sale that enables customers to use the products efficiently. On-time delivery, technical support, troubleshooting, training, and customer service are simple examples of services that are provided after the sales transaction.

Industrial marketers often struggle with services because either (a) they don’t understand the fundamental difficulties of marketing intangibles, or (b) their organizations are not designed to support a services model. Both problems are different manifestations of the same problem.

Industrial products are mass produced in controlled condition. The products are created by engineers who have relatively little contact with customers. Services, on the other hand, are custom manufactured by people who are in frequent contact with customers. The design/creation of the service is also the manufacturing/delivery process.

Problem #1: If the delivery is poor, the customer assumes that the design of the service is also poor. This can alienate customers, and cause them to question the value of the products as well. Industrial companies tend to view the service components of their business as cost centers, rather than revenue centers. Many industrial marketers take the intangible component of their product/service offerings for granted, and focus the overwhelming share of their attention on products.

Problem #2: With products, customers know what they will get before they buy. With services, it’s the opposite. Customers usually don’t know what they’re getting until they don’t get it. This can lead to customer alienation too, because your industrial customer, like the consumer, become aware of your intangibles when you screw something up. This makes it easier for competitors to sell against you (at least for a short time). Industrial companies emphasize product quality improvements, but often ignore service excellence. Metrics related to services are almost always focused on cost containment, rather than the profit contribution of service excellence

Monday, October 11, 2010

All Products (Even Industrial Products) Are Intangible

Intangible products can seldom be tried before purchase. Intangible consumer products include travel, medical care, financial planning services, or even a simple haircut. Tangible products, such as a new suit, a car, or new watch can usually, to some degree, be tried before purchase.

In our world, the industrial sector, most of the products sold have a significant tangible component. Industrial marketers commonly assume that only the tangible component matters to their customers. I can prove this. Pick up a copy of your favorite trade publication and scan through the ads. The vast majority of the copy is about tangible products and/or product tangibles.

In reality, every product is both tangible and intangible. A watch is tangible, but the ability to be on time for appointments in intangible. A haircut is intangible, but the barbershop is tangible.

Industrial products are the same. A steam boiler is tangible, the reliability of the boiler is intangible. A railcar of polyethylene resin is tangible, but the technical service that helps you use the resin in intangible.

Industrial buyers buy differently from consumers, however. Professional buyers tell suppliers that intangibles are irrelevant, that only tangible features and selling prices really matter. Sometimes they’re being honest, and sometimes they, shall we say, spin the truth to their best advantage.

Commoditization is a problem for both consumer and industrial manufacturers. In many product categories, such as paper products, the biggest selling brand is the store brand, not the national brand.

But most techniques that work in consumer markets simply won’t work for industrial products. If you’re marketing pickles, you can package the pickles in an attractive glass jar, so people can see how fresh they look (and hopefully assume that they taste good). If you’re marketing, say, machine parts, you need a different approach.

To the extent that you can’t truly experience using any product before you buy it, all products are intangible, no matter how tangible they appear in nature.