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to cultivate satisfied customers who believe they get their money™s worth
and will come back a second and third time. This may require you to sac-
rifice short-term profitability”a good sacrifice if you like your chances
over the long term.

There are many ways to reach customers; the key is to know which way
to reach the customers who will be interested in what you have to offer.
Marketing activities include these and more:


• One-to-one sales.

• Direct mail.

• Personal phone calls.

• Brochures and catalogs.

• Classified ads.

• Yellow Pages.

• Newspaper display ads.

• Newspaper articles.

• Magazine ads.

• Magazine articles.

• Radio.

• Cable TV.

• Network TV.

• Web sites and Web ads.

• Billboards.

• Direct mail.

• Promotional items.

• Seminars.

• Demonstrations and contests.

• Trade shows/fairs.

• Catalogs.

• Telemarketing.
180 Build Long-Term Growth



• Newsletters.

• Public relations.

Great effort will likely be spent, whatever activity or combination of ac-
tivities you choose, on telling the customer about your product. Tell your
customers how your product will enhance their lives, and show them
your empathy for their exact situation.

In addition, know what you want to accomplish with a specific market-
ing activity: Do you want to increase awareness? Draw someone into
your location? Have them call your sales office? Buy from your web site?
Order from your catalog?

Be sure to give customers the right way to get in touch with you, and
don™t neglect to track your results meticulously. In the course of my busi-
ness, I did a lot of direct mail. It was critical to know not only what
worked and what didn™t, but also when it worked”as in when the cash
would come in from each effort.



PRODUCT DEVELOPMENT

How you define your product will have much influence on how you ap-
proach product development and marketing. If you think you sell cars,
you might not think of yourself as the provider of a moving environment.
You might think your customers are simply coming to buy a car, but
what would they ask for if a car did not exist? They would want some-
thing that could comfortably, safely, and reasonably inexpensively move
them from one place to another”anywhere, even difficult to reach loca-
tions. Defining your product by solving customer problems is essential.

Product development is the incremental process by which you make an
idea into a product”and thereafter increase the product™s quality and
usefulness to your customer as time passes. Thus, product development
has to do with existing products as well as with new; indeed, most com-
panies develop their best new products from ones they already sell.
They begin developing successor products the moment they think of
the original.

Truly new products are rare, and no prudent manager waits for a brain-
storm before making improvements to existing products.
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Growing Profitably with Marketing and Product Development



However you get to the new product, the generation of new ideas is the
most interesting part of product development. In many ways, it™s the most
creative work of the company”and as many people as reasonably can
should take part.



SOURCES OF INNOVATION

The sources of innovation at your disposal include your employees as
well as your customers. Innovations often come from routine customer
comments. The company that translates the wishes of its customers into
products appealing to a broad market succeeds almost automatically.

When new ideas emerge, help employees do preliminary research by
considering these questions, especially about competition:

• Is this product one that could be sold easily along with other
products we currently sell?

• Does it have a large market potential?

• Would this product be costly to produce?

• Does it have direct competition? Could you produce a superior
product?

• How did this idea originate? From an existing product? From a
gap in the market? From an unresolved customer need?

• Does the origin of the idea say anything about other new products
you might consider?

Successful products also come from looking at what™s hot in your indus-
try or at what your competitors do better than you do. This requires
keeping tabs on your competitors. Stay on the mailing lists for competi-
tors™ products and read trade journals with an eye to developments that
signal new needs in your marketplace.

It™s important to pursue new products even if your current lines sell well.
The best kind of product development extends the interest in your prod-
ucts to new audiences while retaining the old.

Your marketing and sales departments should welcome new products
because they offer something new to talk about to customers who may
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have bought existing products for years. They can rekindle interest in
your entire product line.

As technology develops, it becomes more and more difficult to stay on
the cutting edge in any given industry. Managers must make decisions
about where their technical strengths lie, invest there, and purchase
other knowledge. How you define what you do should be clearly tied in
with your company™s core competency. Your core competency is the thing
that you do best. It is the strongest of your strengths. In my company™s
case, it was taking complex data and translating it into something simple
to understand and simple to use.

The Nordstrom department store™s core competency is in developing a
relationship with customers. Accordingly, they define their product as
the service their sales associates add to the value of merchandise with
this philosophy:

Offer the customer the best possible service, selection, quality, and value.

Much of product development stems from knowing your core competen-
cies. Historically, approximately 90 percent of a company™s proprietary
products or technology came from in-house development and 10 percent
outside. In the future, the breakdown may become 50“50, and the defini-
tion of “outside” may come to mean contract work, joint ventures, uni-
versity research, and consultants.

All this drives up costs, making product development not only the most
creative but perhaps the riskiest function inside the organization. Man-
agers must forecast how well new products will do and know when to
make changes. They must also know when to abandon a project.



ASSESSING COSTS AND RISKS

New products are high-risk ventures, challenging you to anticipate and
minimize the risks you undertake. The following chart assesses the risk-
iness of a particular new product:

Existing Customers New Customers
Existing products Lowest risk Some risk

New products Some risk Highest risk
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Growing Profitably with Marketing and Product Development



Smart managers expand their product line incrementally, moving in
small steps from product to product and market to market. As they go
along, they ask themselves key questions:


• Does the product come from a need you know your customers
have? Or do you merely think it™s a need? What™s the evidence of
that need?

• If specific customers want the new product more than others, can
you bring them into the development process? Would they pick
up some of the development costs? Would they commission the
product outright?

• Will this new product fundamentally change your internal oper-
ations? If you have inventory under tight control, will this prod-
uct interfere with that discipline?

• Are you counting on the quality of the product”not just value or
level of service”to sell the product? If one of these three factors
weighs more heavily than the others, which does?

• How many competing new products are in the market already?
If interest centers on a competitor™s product, is there room
for you?



MINIMIZING RISK

People in product development turn an old advertising joke on them-
selves: “I know half of my development money is wasted. I just don™t
know which half.”


You minimize the loss of that money if you know the following:


• You must maintain high quality with the new product.

• Customers familiar with your existing products must find the
new one easy to use.

• Target customers must think the product has been made just for
them.

• The product must add value to your operations without adding
much new cost.
184 Build Long-Term Growth



If product development is a central activity in your company, give it an
equal footing with marketing, sales, operations, and finance in the plan-
ning and implementation process. In this way, product development not
only supports the core business plan but also helps to define it.




L AG G I NG YOU R M A R K E T

Through the 1980s, Mead Corporation™s Lexis®, a computer-based
legal research service, dominated its field. Lexis was one of the
first sophisticated and widely used online services, and it made a
fortune for Mead, kicking more than $50 million a year up to cor-
porate headquarters on revenues of around $400 million. In the
midst of all this promise and money, Mead decided to milk the
Lexis subsidiary rather than cultivate it.

However, the company invested little money in developing or im-
proving Lexis services. As a result, other data providers entered
the market. By the early 1990s, Lexis was only one of many legal
online services and it lost market share fast. In 1994, Lexis was sold
and their new parent company made other strategic acquisitions of
legal content providers to help them regain some of their previous
market share. “Technology and the marketplace passed them,”
says a former Mead manager. “Senior management was content to
remain a broker of public-domain information while competitors
were developing value-added services. They paid the price.”

The lesson is that if you decide to create a new product, you must
also make the commitment to maintain it in the long term. Re-
member that a new product that succeeds won™t remain alone for
long”keep the momentum going by making it a priority.




MARKETING GOALS

However you monitor its effectiveness, your marketing department
should seek to remove the barriers blocking communication between you
and your customers. This usually takes the form of research and informa-
tion gathering, but whatever form it takes, it needs to focus on two objec-
tives: simplicity and sales.
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Growing Profitably with Marketing and Product Development



Your marketing goals should seek to:


• Increase the number of potential customers who come into con-
tact with you.

• Increase your conversion rate, so that more of these potential cus-
tomers actually buy from you.

• Make sure they buy again.

• Use this information for product improvements and the develop-
ment of new products.


Doing marketing well depends on your ability to pursue new ideas
through the ordinary course of business. Small companies tend to fare
best here because, being small, they remain nimble. Big or small, how-
ever, companies do poorly when turf battles erupt or factions create un-
written rules that resist change. To get around this, managers create
cross-functional teams to foster product development, calling on people
from finance, marketing, and operations to work together on a single new
product. This can cause some confusion, but the creative upside is well
worth the risk.



TOOLS FOR MARKETING AND PRODUCT DEVELOPMENT

Like operations, marketing brings a particular perspective”and particu-
lar priorities”to management. The following worksheets and exercises
will help you make the most of your opportunities:


• Assessment of competition.

• Product sales by marketing method.

• Product development checklist.


Ask yourself these questions about your marketing and product develop-
ment effort:


• What is your biggest competitive advantage?

• Do you, as a group, clearly understand your customers and
markets?
186 Build Long-Term Growth



• Do you know where you are positioned in your market?

• Are you regularly creating the next generation of new products
and services and offering them to existing customers?

• Is overall customer input (positive or negative) trending up or
down?

• Are your products and services out of date?

• Are you losing market share?

• Is your pricing appropriate and competitive?

• How do you decide when to initiate a price change?

• Could a competitor put you out of business?

• Could a government or technology change put you out of business?

• What is the biggest threat to the long-term survival of your
business?
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Growing Profitably with Marketing and Product Development



ASSESSMENT OF COMPETITION

Worksheet 6.1 provides a means to keep track of competitors™ progress in
the market and to learn from their successes and failures. Being able to
anticipate how a competitor will act or react can provide a significant ad-
vantage in planning your strategy.

Keeping track of your competition is more important as a sales tool than
as a means of setting goals for product development or service. It is im-
portant to know what they do well because your customers will know,
even if you don™t.



Making It Happen

List all the major competitors you know about. Use industry magazines,
trade association contacts, financial reports, or news services to make
sure you have a complete list. Some entrepreneurs even telephone com-
petitors directly to discreetly inquire about their sales volume, products,
and pricing policies.

Obtain their catalogs or other marketing materials, and buy their prod-
ucts or use their services. Ask friends what they like and don™t like about

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