Seven Steps to Greater Profitability Through Target Marketing 1
Dave Cranmer, Phase 3 Consulting LLC
In the current economy, a lot of business owners are looking for more sales. But why? It's the belief that more sales means more profits. What if you could have more profits with fewer customers? With fewer headaches? That's what target, or niche, marketing is all about. It's about finding and choosing those customers who value what you do and are willing to pay you for it. Identifying and developing niche markets is pretty straightforward, but you have to do your homework. The following seven steps can be used to help you through the process.
1. Analyze your existing customers. Numerous studies have shown that it's much more expensive (at least 5 times) to acquire new customers than keep current ones. What information do you have already? It's in places like invoices and work orders. What do you know about them now? Who are they? What do they buy from you and why? Which customers do you make money on? Which customers really value what you do for them? Are some of them always calling and demanding more - more service, more documentation, more price cuts, more whatever? These customers cost you money, which is usually buried in your overhead, and not reflected in your prices. Collecting what you know in one database and analyzing it along these dimensions can tell you which customers you should really try to keep, and which ones to let go. A simple analysis can show you some pricing changes that can put more money on the bottom line quickly.
2. Look at the real reasons you don't get orders, especially if you get business through a bidding or quoting process. You probably believe it's just the price. Certainly, that's what your sales people told you. The reality, though, may be very different. Usually only one part of it is price. Other factors include delivery, quality, before- and after-sale service, and lack of features or too many features. Sometimes, you're just being used to satisfy someone else's requirement to have multiple bids. If you knew you had no chance of getting the business, would you spend the time and money needed to respond, or would you use the money somewhere else?
3. Ask your customers how satisfied they are with your products and services. Don't just look at the features your product offers, but include service, delivery, parts, warranties or guarantees, and price. These are all items that buyers use to evaluate whether to buy from you or someone else in the first place. Studies have shown that satisfied customers are more likely to buy from you again. Knowing who's satisfied and who isn't might tell you who you need to focus your attention on.
4. Look at your market niche and your competitors. What market(s) do you really serve? Can you describe them in very specific terms? If your descriptions are things like "Federal government" or "telecommunications companies," you probably don't really know your niche. Use descriptions like "health food stores in the greater Baltimore-Washington metropolitan areas whose sales are over $2 million per month," "sawmills with over 100 employees," or "the material handling robot niche under 10 pounds lifting capacity." These are very specific descriptions and allow you to focus on specific needs and wants.
Who are your competitors? Are they local, regional, national, or international firms? How do your products and services compare to theirs? You'll want to look at it in terms of product features, price, delivery, guarantees, and sales coverage. You can organize what you know about them in a simple competitor matrix where the columns represent the product features, services, and quality of the various offerings, and the rows represent your company and its offering and your competitors' companies and offerings. Recognize that you probably won't be able to fill in all the cells in the matrix, and be prepared to do some homework - competitive intelligence - to fill in the gaps.
5. Use what you know about your customers as a strategic asset. If you capture information about your customers - who they are, what they bought, who sold it to them, why you lost orders - in a database, you can use it to determine what's selling and what's not; who's selling and who's not; what's profitable and what's not; what products you need to improve or remove; what new products you need to create; and a variety of other things. Use it to develop a profile of the types of customers you want. All of this information is intended to help you get better and get closer to customers who value what you do.
6. Develop sales forecasting and sales reporting techniques. Compare the two on a monthly (or more frequent) basis. Knowing how your sales are developing compared to what you thought they'd be can let you take corrective actions sooner. Knowing that you're growing faster than you thought can let you prepare to find the financing you'll need to support that growth - and not get caught short of cash when you most need it.
7. Find target markets that are profitable for you and provide value to the customers. Use databases like Dun & Bradstreet's or Harris to search for more customers like the ones you want. Let go of those that don't generate profits.
The more you know and the better able you are to put information about customers, markets, and competitors into context, the better prepared you'll be to turn it into knowledge and wisdom to weather the inevitable swings in the economy. These seven steps will help you become more customer-centric and let you focus your limited attentions and resources on fewer customers with greater profit potential.