Supply Chain Management: Is it Finally Taking Over?

We chose this month’s topic because an increasing number industrial marketers must sell into markets that utilize supply chain management — or claim to do so. I wrote this article in 1998, but the basic conclusions are still the same.—PWH

Supply chain management has become a market in its own right. Companies that have implemented the principles of supply chain management behave differently, and acquire products in a manner that is different enough to justify special emphasis.

But what is it?

Supply Chain Management (SCM) is the process that manages the suppliers’ role in a company’s value creation process, from raw materials into its operations. According to one VP of manufacturing, “it’s about figuring out who does which task best, letting them do it, and not duplicating efforts.”

OK, but what is it?

To really appreciate SCM, one first must understand a more fundamental concept: the Value Chain.

The term “value chain” was invented by Michael Porter about 15 years ago. Like many fundamental concepts, when you see it, you say “gee, that’s obvious! Anybody could have thought of that.” The best ideas in business are usually very simple to understand. Most are not obvious, however. The value chain is one such concept.

In a nutshell, it is extremely simple: You make money when you transfer something you have to somebody else who values it more than you do. That’s how people, companies, societies, and nations become wealthy.

What are five activities, in order:

• Bring materials into the business

• Operate on themMichael Porter did was to look specifically at a business, and figure out what it must do to become wealthy. There

• Send them out of the business

• Market them

• Service them

In addition, Porter defined four support activities that act as a lubricant to the big five. They are:

• Procurement

• Technology development

• Human resources management

• Infrastructure

The support activities are omnipresent. Most companies have a procurement department, but it buys only a fraction of what the company buys as a whole. Most companies also have an R&D function, but it conducts only a fraction of the technology development that the company actually performs. And so on with the other support activities.

Nice concept. Everybody can understand that any business must do five activities to stay in business. In practice, it is of limited use. Mapping an entire value chain is a vast undertaking. In an environments where markets are changing, it is nearly impossible. Most companies that work on value chains start with their own supply chains, since they are easier to understand and control. Most of them end there too.

Another reason your customers focus only on SCM is based on organizational politics. A significant portion of supply chain management can be managed almost completely within the procurement department. In order for a company to execute a true value chain strategy, many functional areas must cooperate. That rarely happens, even in a crisis.

The Essence of SCM

Let’s examine more carefully what your customers are trying hard to do. They are trying to become more competitive by being more cooperative. That is to say, companies that have adopted SCM thinking are trying to discontinue the practice of viewing their suppliers as cost centers. In essence, they are trying to build a competitive advantage by developing a network of companies that, by sharing information, produce goods of market value faster and at lower cost.

In theory, it would work like this: Say your customer sells power tools to Sears, and you’re in the wire business. Every night, Sears downloads the number of power tools sold, by model, by location. Your customer then electronically orders more wire from you, in the appropriate gauge and composition. In turn, you order more base metal from your supplier.

The Reality of SCM

In reality, industrial companies talk a good game, but are a long wayfrom implementing anything close to supply chain management. In a recent survey conducted by Purchasing magazine, it was found that the majority of purchasing organizations are struggling with the basics. For example, while 69% of companies have taken steps to automate basic purchasing transactions, 73% of companies reported that they have seen no significant shift in their day-to-day activities.

Automated transaction processing is a basic capability all companies in the supply chain must have, but the companies that stand to benefit most aren’t close to making it a reality. When asked to rate their progress toward automation goals on a 1-10 scale (10 being “at goal”), buyers provided a weighted average score of only 4. Nobody rated their progress higher than 8, and only 27% rated their progress greater than 5.

Simply put, they’re muddling their way through it. Many companies are jumping on automation without rethinking how they get things done. To make matters worse, they are not involving other members of the supply chain. Buyers rated supplier involvement as a 6 on a 1-10 scale (10 being “very important”) and supplier’s willingness to cooperate as a 7 (10 being “very cooperative”). Yet, very few companies are doing anything at all with suppliers; they remain internally focused.

Yet, it is not uncommon today to receive requests for quote (RFQs) full of language that suggests that buyers are considering a number of supply chain factors in their decision making process.

Let’s be nice and say that, although their hearts are in the right place, the typical buyer struggles with the most basic steps of supply chain management. Even the ones who believe in the concept — and lots of “old school” buyers don’t — have trouble getting beyond simple comparing purchase prices.

How to Use SCM to Your Advantage

Earlier in this article, we said that SCM companies are their own niche. Given the low level of implementation, this statement may not seem to make sense. We think it makes perfect sense, and here’s why.

Companies that are trying to change their thinking about how they buy things are most likely to buy from you for reasons other than low price. In particular, they probably already believe that the goal is to design and manage a superior value delivery system for their customers. If your company positions itself properly and expends the necessary effort to target the right senior-level managers in your customer’s organizations, you are likely to win more than your share of new business.

Two implications emerge here: Simply responding to RFQs as they present themselves won’t work, and dealing with lower level purchasing managers won’t work either. You must identify potential SCM companies in your marketplace in advance, and present yourselves to their senior buyers before any RFQs come down the pike.

What you want to do is differentiate your company as the most capable partner for your customers to begin building a value chain. To make this strategy work, you must call on general managers or above — a Very Important Top Officer, or VITO as Anthony Parinello terms it.

How To Do It

The key to making this approach profitable is to first understand your customer’s current supply chain, and develop your own map of how your products impact your customers operation, with particular attention to the problems you generate for your customers. The map is not only your way of understanding how to position your company, it’s your selling toll.

To make the map effective, you must take two steps: First, understand how your customers make money, and how they expect to make money in the future. Second, your team must take a critical view of how your company gets in the way of your customers achieving these goals.

Your company, not just your products. Not just how you package, deliver, and sell, but also your contract terms, discount policies, distributor policies, your contract terms, and your customer service. Everything you can think of, from your customer’s perspective. Involve your sales force. They probably can tell you what you need to know in 20 minutes.

Next, you take this information and literally put together a picture for your customer — or a series of pictures, if you will. The picture will explain what problems you cause your customer, and how you propose to solve them. This will become your sales tool. For it to be effective, you must make sure you’ve identified an important problem and a real solution for it. And not just any solution — the ideal solution is one your competitors cannot easily copy.

When you make your call, explain up front that you’re not trying to make a sale. Instead, you’ve identified a problem that your company probably is creating in their organization, and you wanted to talk with them about making it go away. If you’ve done your homework, you will be able to be specific about the problem. Calling to say you’ve identified a “$2 million inventory problem” is an effective way of getting an audience with a top manager.

That’s the bait. Companies that are trying to implement SCM will bite hard and quickly.

In the meeting, you simply go through the logic of your map. Explain the situation from their perspective, and ask them to confirm your thinking at each step. Start with your company, its policies, products and practices. Most buyers will be pleased that you begin your meeting in this way. Conclude your presentation with a numerical example of how the problem impacts VITO. For instance, you might conclude by saying something like “and that’s how we concluded that the contract we’ve asked you to sign is causing you to carry $2 million in excess inventory. We’ve realized that as long as our policies create problems for you, they will create problems for us as well.”

The hook is set, now all you do is jerk the line. When you finish your presentation, VITO will realize that, finally, he has a vendor who really understands his problems.

VITO will glare at you and say “you’re right! So what do you plan to do about it?”

Then they’re hooked.

At this point you present the rest of your map, along with your vision for how your company can continue the process to address the core business issues your customer is trying to solve.

It works even better if you are calling on a competitor’s account.

What’s Driving VITO
Up the Wall

The reason you must focus your discussion on your customer’s top management is because at industrial companies, the P&L comes together only at the top. What they see at the top is that 30-40% of their final costs are tied up in physical distribution — transportation (15%), inventory carrying costs (9%), warehousing (8%), and administrative overhead associated with distribution (8%). Not only are these costs eating up VITO’s profits, but competition is fierce in the areas of price, and delivery.

Vito knows that 30-40% of YOUR costs are also tied up in distribution. If you show VITO how he can help you reduce that cost, he knows it will go straight to his bottom line.

The other things driving VITO up the wall are related to the overall Value Chain Problem. It’s so impossibly huge that it cannot be addressed economically or quickly. It can only be taken on in sections. Supply chain management is one section that is tied to material’s movement into the company. The three other key problem areas include:

New products. All the activities associated with developing new products.

Order-to-remittance process. All the activities that occur between receiving an order and receiving payment for it.

Customer service. All the activities associated with making it easy for customers to reach the right people to get satisfactory answers and resolutions to their problems.

To the extent that your solution map can address these other core issues, you will differentiate your company better than your competition. Once this relationship is established, it becomes the basis of your response to future RFQs. Your objective is to position yourself as an advisor to your customers as they write their RFQs.

Here’s an actual example of how a company did that. For many years a container company saw itself as being in the “box business.” They would produce corrugated containers to their customer’s specifications, and ship them to their customers’ plants on a JIT basis. The customers would put their manufactured goods in the boxes, and ship them to stores, where the goods would be removed and the boxes discarded. No matter how the container company tried to improve its products, its competitors always were able to match its performance and pricing.

After careful analysis, the company decided to bypass its traditional customer base and develop a strategy targeted specifically at Wal-Mart. The company built a state-of-the-art “package solution center” next door to Wal-Mart’s headquarters. Next, they invited about 20 executives, including Wal-Mart’s head of purchasing for a tour of the new facility.

As part of the tour, they presented Wal-Mart with their solution to one of Wal-Mart’s core problems: How to reduce merchandizing costs and get products on the shelves faster. The package solution center was capable of producing a full-color prototype package in a single day, beginning with a round-table discussion with the customer, rather than the usual 7-14 working days imposed upon Wal-Mart by other companies. It wasn’t long before the company was nabbing lots of new orders at premium pricing, and taking share from its competitors. The idea worked so well, they have put an executive in charge of the operation and expanded it into a “global package solutions center.”

As it turns out, Wal-Mart is one of those SCM-focused companies that we suggested you focus on in the beginning of this article. Supply chain management, although poorly implemented by most industrial companies, can be a powerful concept if utilized in a manner that positions your company to better solve your customer’s problems.—Prentis Hall

MARKETING EXPERT VS INDUSTRY EXPERT

Note:

This week's post is contributed by marketing consultant John A. Murphy. -- PWH

A serious mistake managers often make when planning to engage the services of a marketing consultant is to insist upon previous industry-specific experience. This article will explain why such experience is of minimal value to the client (as well as the consultant) and often, even DANGEROUS for the client.

At the outset, an important distinction needs to be made between “industry specific experience” and “industry specific knowledge.” It might be a valuable exercise to ask: “What is it I expect a marketing consultant with “industry specific experience” to bring to the equation besides marketing capabilities?”

You should expect such a person to be familiar with the “key players” (competitors, customers and distribution chains-where applicable). She should also have a handle on industry trends (e.g. technological developments/innovations through trade associations, government contacts, industry “gurus” and trade press) and she should have an historical knowledge of how the macro environment (e.g. inflation, trade policy, etc.) affects the industry.

The truth is, after you meet with a consultant and she endeavors to understand your problems and expectations, she should return not only ready to make an “abstract” marketing proposal as to how she can meet your expectations, but she must do so in the context of such “industry specific” knowledge. Note, I said KNOWLEDGE, not experience.

How does the consultant come by such knowledge without corresponding experience? This is part of the “stock-in-trade” of the consultant. Secondary marketing research is a basic skill of everyone in the marketing profession. We all know how to check with the Commerce Department, trade associations, trade press and the basic library business indices, or turn on our computers and enter an electronic data base. We also know enough to call a few competitors and customers to get an even better feel for what is going on.

What we do not try to do is become a technical expert on the design or application of the devices a given company may manufacture. Odd as it may seem, the actual device that a company makes is not the first concern of a marketing expert. Remember, R&D, engineering and production are concerned with making devices; marketing, however, makes the product, and it is the product, not the device, that customers purchase.

Furthermore, one of the major reasons to engage someone from outside the company and industry is for their OBJECTIVITY. A “marketing consultant” with prior industry-specific experience runs a DANGEROUS RISK for the client in two ways:

First, the consultant’s previous “pertinent experience” may have dulled his/her objectivity. She may often have the tendency to shoot from the hip using a gun loaded with “instant answers.” Familiarity may breed not only contempt but also marketing myopia. Second, years of “industry specific experience” often comes at the expense of a depth in MARKETING experience. The trade-off is usually in the form of “doing the right thing” for “doing things right”. Of course, in marketing no room exists for such a trade-off. Yet such trade-offs are often made when one is focused on the present and not the future (in terms of profitability performance).

A case in point should illustrate this clearly: When Apple Computer needed to replace Steve Jobs, they did not tap IBM, HP, TI or even Tandy. They did not even go to industry-allied companies like Intel or NEC. In fact, they went to a company not even considered to be part of the “high-tech” culture. They took John Sculley from Pepsi! Mr. Sculley knew little about computers going in, but he was quite an accomplished MARKETING expert.

[Note: In the opinion of many Apple fans, Scully took Apple down the wrong path. Nevertheless, John’s point is well taken. Under Scully, Apple was more profitable than it is now. –PH]

Another, perhaps more down-to-earth, reason why a marketing consultant avoids “industry-specific experience” can be illustrated by the following scenario: A marketing consultant is engaged by company “A” in the “XYZ” industry, completes the assignment and then is engaged by company “B” a direct competitor of company “A”. (The consultant now has full knowledge of financial and trade secrets.) Company “B” might think it is about to get one up on its competitor until it realizes that it will be in the same position should the consultant return to company “A” or be engaged by yet another competitor.

The marketing consultant is aware of this dilemma and assiduously avoids it (nondisclosure contracts notwithstanding). The marketing consultant thus realizes that too much experience in any given industry could be the “kiss of death” for his own business.

A final word about Industrial Marketing Consultants and marketing expertise. All marketing consultants develop their expertise by specializing in certain areas of marketing — industrial, consumer, or the service

industry. Sometimes their field may be quite narrow; e.g., mergers/acquisitions, personnel, marketing information systems, etc. Within all areas of specialties there is, however, a shared expertise. All need to know certain fundamentals, on the one hand: how to conduct the market audit, fully understand the fine points of “OBJECTIVE/STRATEGY/TACTIC” – the dialectical nature of the marketing process. On the other hand they also need to have such expertise in operational activities as when to use tools like conjoint analysis or multi-dimensional scaling, even which algorithm within these “tools” will yield the best results. Moreover, the Marketing expertise of the consultant should be revealed by his membership in such professional associations as the certifying body called “The Institute of Management Consultants” as well as the “American Marketing Association” and the “American Management Association.”

What I am saying, essentially, is this: a truly professional marketing consultant would never, by definition, also be an expert in a specific industry.—John A. Murphy

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

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.

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.

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 http://www.underdogconsulting.com

Several years ago I attended the Worldwide Lessons in Leadership (Wyncom, Inc. www.wyn.com) 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.

Covey	Customer Needs	Six Sigma Methodology
Mind	Customer Requirements	Voice of the Customer
Body	Performance	Process Indicator
Heart	Satisfaction	Process Sigma
Spirit	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).

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: http://www.neveraloneonhold.com/