Why are Marketing & Sales Forecasts Usually Wrong?

Because forecasts attempt to predict the future they will always be wrong to some degree.  Problems arise with forecasts that are usually far off the mark and the resulting impact on a business.

Not that Marketing and Sales can’t or don’t attempt to produce a good forecast, but mostly because the process many companies use is the reverse of what it should it be to produce a good market-driven forecast.

“I skate to where the puck is going to be, not where it has been.” – Wayne Gretzky

The above quote from Wayne Gretzky succinctly describes the fundamental problem with the way many companies do forecasting – it’s primarily derived from what happened last year – what was sold based on where the market was, instead of where the market is going to be and what customers plan to buy.

Take the current state of business software companies as an example of this continuing wrong-headed forecasting by business, sales and marketing executives:

• Traditional on-premises business software vendors’ license revenues are down an average of over 30% for the most recent 12 months.
• Software as a Service (SaaS) business software vendors’ new subscription revenues are up an average of over 20% for most recent 12 months.

The announcements from on-premises vendors about their results are that the shortfall is due to the economic conditions.  But, the SaaS vendors are growing in the same economy and markets.  It seems that the on-premises vendors have deeply flawed forecasting and planning processes given the size and claimed unexpectedness of the shortfall.

Now there’s a flurry of announcements from on-premises vendors about plans to bring SaaS solutions to market.  But, marketers at these on-premises vendors have seen this trend toward SaaS coming since 2007 or earlier and many urged their companies to make investments and commitments for SaaS solutions some time ago.

So what happened?  More of the same.  The forecasting process usually starts with C-suite executives adding a percentage growth number to the previous year’s actual sales numbers.  Usually with no or minimal regard for market forecasts and changing conditions.  The Sales organization in turn is required to commit to make the number.  Sales then distributes the number through their hierarchy until everyone owns a piece of the commitment – the individual, team and organizational quotas.  After some negotiations, the numbers are locked in and marketing now has to somehow produce leads to support sales quotas produced by a flawed process.

And that’s where things begin to go wrong – right at the start:

• C-suite executives want more revenue with minimal incremental investment and pressure Sales to commit to these arbitrary forecasts.
• Sales want to do what they’re comfortable with and what worked in the past – sell more of the same stuff in the same manner.
• Marketing and Sales work hard to produce leads and sales, but they’re swimming against the market currents.
• Marketing knows that markets and buying preferences are changing, but it’s tough to get the right attention until the changes leap out and slap everyone with bad results from doing more of the same old stuff.
• R&D has a huge backlog and can’t tackle any new projects for at least 2 or 3 years.

Producing good market-driven forecasts is not rocket science.  Manufacturers do it well with robust forecasting, planning and scheduling processes that drive the business from end to end.  B2C companies have a much more robust and statistically accurate process that starts with Brand Managers developing market-driven sales forecasts and business plans which become the playbook for all areas of the business.

Seems to me that the fundamental problem is that many B2B companies, especially Information Technology companies are not really market-driven – see the Marketing in a ‘Market-driven’ company article for more information about what it means to be market-driven.

How do you deal with this forecasting issue and do you have any recommendations on what has worked for you?  Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Are you Inside-out or Outside-In?

Anyone who has worked with me has probably heard me refer to ‘outside-in’ versus ‘inside-out’ more times than they care to remember. While these are familiar terms and concepts to marketers, seems that many of us are easily captivated by all the wonderful new things our companies are doing with products, services and technology, causing our messaging to be inside-out. This appears to be more prevalent in B2B and particularly Information Technology companies.

Take an example of a Distribution Company that needs an operational system to expand their business for new opportunities in after-sales services. They make some inquiries, visit websites, receive emails, white papers, etc., but most of the information is about “platforms”, “services oriented architecture”, “next generation technology”, “software as a service”, product feature/functions, product brand names and other inside-out jargon, all of which are meaningless to them. The prospective buyer begins to question whether anyone actually has a solution to meet their business needs.

“Nobody cares about your products and services (except you)” – Pragmatic Marketing

Outside-in begins with customer value. The ‘customer’ is not just research, demographics and statistics about some market segment. It’s about the current problems, challenges and opportunities that real companies and people face in markets you plan to serve. What roles these people have in companies, what they worry about, what solutions they really need, how these businesses operate and many other factors.

Value is defined by the customer or prospective buyer – it’s not your list of perceived benefits, ROI and other claims. The value is expressed in terms of how your solution creates value for customers by meeting their real needs within their context.

With this deeper understanding of what, where, who and how to provide customer value, you’ll be ready to formulate an outside-in marketing strategy with value propositions that connect with the real needs of these customers. To make the outside-in value connection, messaging should start with value in customer terminology and context, along with specific messaging for the roles of key influencers and decision-makers.

A good consequence of the outside-in approach is that you will have more definitive market segments comprised of sets of companies based on their specific needs and the value you provide. Expanding on the Distribution Company example – you may find a common trend that industrial distributors are facing a slowdown in their traditional business, but some are seeing more demand for installation and maintenance services. If you can create value by providing a solution for them to quickly establish the necessary capabilities for a services business extension, then that would define a very specific target market segment.

Businesses are always looking for growth opportunities. Being market-driven and following an outside-in marketing approach are excellent strategies for driving growth.

There’s a lot more to the outside-in / inside-out discussion I’ll revisit in future blog posts. Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Marketing in a ‘Market-driven’ company

This is the fifth post in the series about marketing considerations relative to company culture drivers. Being market-driven means that everything done by everyone in the company is driven by the needs of the target market(s) you serve. Easy to say, makes sense to most people, many agree with the proposition, but truly market-driven companies are in the minority, particularly in B2B.

The following are key characteristics of market-driven companies (in no particular order):

1. Strategically selecting the market(s) and segments you serve
2. Understanding the problems, challenges and opportunities prospective buyers in your market are dealing with
3. Knowing the trends and future issues prospective buyers in your target market(s) will face in the next 1-3 years
4. Listening to and understanding what your customers are telling you about what’s really going on in their business, not just what new feature/function enhancements they want
5. Using reliable fact-based research data and industry/market analysis amongst several inputs for making strategic go-to-market decisions
6. Making strategic decisions across all areas of the company for which market(s) you’re going to serve and the key value propositions your company drives to market
7. Always using the ‘outside-in’ perspective
8. Your solutions genuinely create value for your customers
9. Focusing on where and how your company can excel in selected markets rather than just having a presence in many markets
10. Developing a corporate mindset of being a trusted advisor for customers and prospects rather than just another vendor of stuff and/or services
11. All functional areas in the company are aligned around the same go-to-market strategy
12. Understanding and responding to the buyer’s process while sales retain control of moving the buyer to a decision
13. Developing long-term customers who want to do business with your company
14. Using a balanced scorecard approach to measure marketing performance across multiple dimensions
15. Marketing is the strategic leader in the company and central to the success of the business

The above is not intended to be an exhaustive, scientifically researched list, but IMO represents the key attributes that I would look for to determine whether a company is market-driven.

Marketing has a significantly more strategic and pervasive role in a market-driven company. Performance expectations from marketing are higher and the risk of making wrong go-to-market decisions will derail the company.

“Business has only two functions--marketing and innovation.” – Peter Drucker

An article about the ROI of Being Market-Driven by Pragmatic Marketing cites various sources that market-driven companies are 31% more profitable, twice as fast in getting new products to market, and have 10-20% higher customer satisfaction levels. Seems that the benefits of being market-driven are tremendous, but my anecdotal view is that it may be the least frequent of the four company cultural models discussed in this series of blog posts, particularly in B2B companies.

Do you work in a market-driven company – how does it work in your company?
(use the comment link below to share your thoughts on this topic)
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

How is your company ‘driven’?

I frequently hear people categorize their company as being “customer-driven” or “we’re a sales-driven company” or “we’re definitely a market-driven culture” or something like that. I’m always tempted to ask 2 questions; “so what does that really mean for how you operate?” and “how does that impact your approach in marketing?” The curious thing is that when you do ask these questions you frequently get wishy-washy answers. So, being analytical and curious, I did some checking a couple of years ago to find out what these categories of how companies perceive they are driven really mean and more importantly, what it means for how you approach marketing.

Every business has a company culture, usually established by the founder/owner/CEO/executive team or similar chief person(s). One of the many facets of company culture is this categorization of how the business is driven. What you usually find is the chief person’s professional career is the primary determinant of the culture. Yes, other factors such as their background, education, culture, personal beliefs, etc. do play a role too, but their career experience seems to have the most influence. Therefore, a chief person who came up through the sales organization will generally establish a ‘sales-driven’ culture while someone with mostly customer service or consulting career experience may establish a ‘customer-driven’ culture.

Seems to me there are 4 major types of company culture drivers:

1. Competitor-driven
2. Sales-driven
3. Customer-driven
4. Market-driven

Sure there are other drivers such as product, engineering, innovation, etc. but IMO they’re a subset of one of these majors. While none of these are necessarily wrong or bad, there are ramifications for the organization overall and associated limitations that may not be readily apparent in some of these.

Companies could evolve through different cultures as the business matures and evolves in the marketplace – for example, a company founded on a competitor-driven premise of providing cheaper alternative products, may move to sales-driven as their market share increases and eventually to market-driven with their own product innovations establishing market leadership.

My next 4 posts on this blog will explore each category in more detail and discuss the implications for marketing supporting each type.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com