Strategic Insights from Calculating Lifetime Customer Value

Last week’s post looked at the calculations and mechanics of developing a Lifetime Customer Value (LCV) model. This post reviews some of the insights that can be determined from LCV calculations for better marketing, sales and business decisions.

Consider the following sample analysis using the same LCV model example from last week's post for reference.

Acquisition costs for a new customer are high and profitability in the first year is usually low or possibly negative. In the example, the ROI in the first year of acquiring a new customer is ~26% whereas the ROI for the next 4 years for those same existing customers is ~92%. More remarkable is the Sales & Marketing ROI in the acquisition year is ~42% and ~297% over the next 4 years. While this insight may be intuitively obvious in general, it is knowing exactly what your numbers are that will enable you make informed strategic decisions for improving performance.

“If you cannot measure it, you cannot improve it.” – Lord Kelvin (William Thomson)

Consider LCV per customer – in the example, total revenue over 5 years is $88,279 of which $12,000 (13.6%) is realized in the first year. LCV per customer in profit terms is $26,093 over 5 years of which $2,500 (9.6%) is realized in the first year. The point here is that many B2B companies invest a huge amount of resources, time and effort to acquire new customers, but rarely seem to show that same determination and enthusiasm for generating returns from existing customers in subsequent years. But the vast majority of the revenue potential and profitability is only realized in those subsequent years.

This raises some interesting questions:

1. Are your marketing and sales resources aligned with generating the maximum lifetime value from your customers relative to your specific LCV data?
2. Are these resources appropriate relative to the lifetime values? The type of marketing campaign and sales activity to acquire a new customer is quite different from marketing and selling to existing customers.
3. Knowing your LCV revenue and profit profiles, are you using the right marketing and sales channels?
4. In last week’s post I recommended calculating LCV by customer or market segment. You may also consider a separate dimension by product line if applicable. Having the market segment and/or product line slices of the LCV data provides more granular and specific insight for making even better and more relevant strategic decisions.
   

Customer retention is a significant factor in determining Lifetime Customer Value revenues and profitability – I’ll explore that in the next post.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

How to determine Lifetime Customer Value

I’ve mentioned Lifetime Customer Value (LCV) in several previous posts. Subsequent discussions around the topic of LCV indicated that while many people talk about it, few actually know the information for their business. Seems that there are perceptions about lack of data, complexity, calculation formula, etc. that get in the way of determining LCV. There’s tremendous value in going through the process and determining LCV for your business. Keep it simple to start, then refine and improve data and calculations over time.

You can find many LCV calculation models on the Internet. For the purposes of this discussion, we’ll use this simplified model I developed:This post will focus on the model and mechanics for calculating LCV using this simplified example. I’ll review analysis and usage in next couple of posts. The following bullet numbers refer to the subscript numbers in the first column of the spreadsheet image above:

1. Unless you only sell one type of product/service/solution to one market segment, you should do LCV calculations by customer or market segment – this will provide much better information and insights to make good strategic decisions. LCV information averaged over all customers in a multi-segment business tends to obscure the nuggets that can make a huge difference.
2. The number of new customers in that customer or market segment acquired in a recent year.
3. What percentage remain active customers in each subsequent year (year over year %).
4. Calculated from the initial number of new customers and subsequent retention rates.
5. Total product/service/solution revenues from these customers each year. Year 1 is when they initially buy, subsequent years are additional purchases.
6. If applicable, the annual license/maintenance/service/support/hosting/etc. fees the retained customers pay.
7. Divide total annual revenue by number of retained customers for each year.
8. Cumulative total revenue divided by initial number of customers. This reflects the LCV in Revenue terms for each customer. In this example each of the initial 1,000 customers that produce $12,000 in revenue in year 1 from the initial sale, produce $18,253 in revenue over 3 years and $22,603 over 5 years.
9. Your total sales costs for acquiring the customers in year 1 and additional purchases in subsequent years.
10. Your total marketing costs for acquiring the customers in year 1 and additional purchases in subsequent years.
11. Your cost of goods sold (COGS) – this example uses a 25% of revenue flat rate.
12. The costs for retaining customers and generating continuity sales(6) – such as support, product updates, services, etc.
13. Total revenue minus total costs.
14. Cumulative gross profit divided by initial number of customers. This reflects the LCV in Profitability terms for each customer. In this example each of the initial 1,000 customers that produce $2,500 in gross profit in year 1 from the initial sale, produce $5,505 in gross profit over 3 years and $7,587 over 5 years.

For added financial accuracy, the Revenue and Profit LCV over the extended period should be calculated in Net Present Value (NPV) using the discount rate (based on prevailing interest rates and risk) to calculate future revenue and profits in today’s value of money. For simplicity, NPV is not included in this example. The time span for calculating LCV should be based on your typical customer life cycle longevity.

What analyses and insights can you glean from this Lifetime Customer Value example that would be beneficial to know in you business?

The next post in this series reviews some of the insights that can be determined from LCV calculations.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

How do you measure Marketing ROI?

Last week’s post about What C-Level Execs want from Marketing discussed the top 3 C-level executive priorities from the eMarketer review of a research study conducted by Heidrick & Struggles. This post looks at ‘Improve Marketing ROI’ which is the 4th highest priority in this survey.

Return on Investment (ROI) is a financial metric generally defined as:
ROI = (Gain from Investment – Cost of Investment) ÷ Cost of Investment
It may be relatively straightforward to calculate the ROI on each specific marketing program or campaign – e.g. a marketing program costs $100k, generates $200k of revenue which represents 100% ROI. But how do you measure ROI for Marketing overall from a C-level perspective? If the marketing budget is a typical 2.5% of total revenues for B2B companies, does that mean the ROI is 3,900%? Not likely.

The big variable is what constitutes the ‘Gain from Investment’ created by Marketing. IMO, this is the crux of most of the conflict and frustration for C-level executives and Marketing to define the value in consistent and measurable terms for Marketing ROI.

Marketing can and should track the ROI of each campaign and program. This essential starting point provides lots of tangible data for analysis and reporting, but it’s an incomplete view. Some sales may only occur long after a campaign is done, but were nonetheless originally influenced by the interest and awareness created by that campaign. How about interest and awareness created from all campaigns and programs that generate sales not attributed to a specific marketing program? How do you account for these?

Then there are all the valuable but intangible gains that marketing creates. Conditioning the target market(s) with press releases, articles, advertising, etc. Developing credibility with various influencers such as industry analysts, consultants, mavens, etc. Customer loyalty and retention programs that may only pay off in future years. Many others. These are all important, necessary and valuable gains generated by marketing, but difficult to put a $ value on for calculating ROI.

"Marketing is inherently about producing results - either financial or otherwise." – Geoff Smith

A better approach is to use a balanced scorecard or marketing performance management (MPM) framework to measure and manage Marketing ROI across all areas that marketing spends time and resources on. This would be based on agreed goals and strategic objectives with C-level executives for each area for marketing. Then establish metrics or key performance indicators (KPIs) for each element. This will produce a more balanced and equitable view of the ROI produced by marketing across all areas for C-level executives that directly relates to the performance of everything Marketing does.

Now that you’ve established what and how you’re measuring marketing performance and ROI, you can work with C-level executives on objectives to improve performance and ROI in specific areas and elements.

How do you measure and report Marketing ROI to C-level executives?

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

What do your C-Level Execs want from Marketing?

In my blog post last week I ended the customer buying cycle series discussing the need for separate marketing strategies to address new customer acquisition versus existing customer retention and unlocking the lifetime value of customers.

Two days after that post, eMarketer reviewed a research study conducted by Heidrick & Struggles on the focus of C-level executives in 2009. Interestingly the top 3 priorities for US senior executives are:

• Acquire new customers
• Increase customer retention
• Increase customer lifetime value

That puts Marketing squarely in the hot seat to enable and drive results for these top business priorities during these difficult economic times. Although not part of this research study, the disconnect for me is that other research shows that so many companies have cut marketing budgets over the past 6-9 months. So, while the top business priorities are clearly goals that marketing needs to drive, they have fewer resources and reduced budgets to accomplish it.

Although these 3 priorities have broad applicability, they may not be specifically what your C-level executives are thinking at your company. I would suggest that, if you haven’t recently done so already, marketing leadership do their own survey of C-level executives of business priorities for the next 12-18 months for your company, and then develop your strategic plan to deliver on those expectations.

“Marketing is too important to be left to the marketing department.”
– David Packard (co-founder Hewlett-Packard / HP)

Once you have your specific top priorities, you’ll need to show your C-level executives:

• Specific marketing strategies for each
• Current marketing campaigns and programs in each area
• How Sales is being enabled to bring in deals in each of these areas
• How other areas in the company are aligned in support of these plans
• Results from these campaigns and programs
• What’s working, what isn’t
• What needs C-level attention

The 4th highest priority in this survey is ‘Improve Marketing ROI’ – an interesting topic that has frustrated many C-level executives and marketers that I’ll explore further in my next post.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Buying Cycle – You have a customer – now what?

This last post in the customer buying cycle series, explores opportunities for marketing and sales to engage with existing customers to drive more deals.

Even though the customer has bought and successfully implemented your product/service/solution, the buying cycle continues with the customer focused on achieving the benefits and value that initially drove them through the earlier steps of the buying cycle. While a customer may not specifically be in the market to buy something at this time, the outcome from this phase of their buying cycle will determine whether they buy more from you in future and what recommendations they make to anyone who asks.

During the achievement step, responsibility for customer success is primarily with support and professional/consulting services. An effective way for marketing to connect with the customer and monitor progress during this step is to ask for a case study. Since case studies are designed to highlight customer achievements, several responses from the customer are possible including:

• It’s too early, no documented achievements yet – this gives marketing the opportunity to follow-up on a regular basis to monitor the situation.
• It’s not going well / we’re having problems / no case studies until our problems are resolved – although negative, marketing can help bring attention to the situation to get it resolved, and continue to follow-up and monitor.
• Customer agrees to do the case study as requested – confirmation of achievement you can now put on record and publicize to attract more customers. Also opens the opportunity to develop a mutually beneficial long term business relationship with the customer.
  

The last step in the customer buying cycle is to have a loyal customer. If your business and product/service/solution creates value for your customer, a loyal customer will create value for your business:

• Lifetime customer value – the total revenue from loyal customers over the relationship lifetime can be many times the initial purchase
• Loyal customers are more willing to be positive references you can use to win other deals
• Loyal customers will promote your product/service/solution in their business dealings generating referrals

It takes significant time, effort and resources for most B2B companies to acquire net new customers. But that’s just for the initial sale – it takes more time, effort and resources to unlock the much larger lifetime value of a customer.

IMO, the key consideration for B2B marketers is that you have two very different audiences and therefore need two different marketing strategies that translate into specific campaigns and programs for each audience:

1. New customers – how to find and acquire net new customers – this is the lifeblood that feeds the long term viability of a business.
2. Existing customers – how to develop customer loyalty that unlocks the significant lifetime revenue stream – this is the major source of revenues and profits for the long term.
   

A key consideration from this series of posts is that the customer buying cycle begins long before your sales cycle and continues long after the sales cycle is done. How do your marketing strategy and sales cycle connect with your customer buying cycle?

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Buying Cycle – What happens after you close the deal?

Continuing the customer buying cycle series, this post explores what may be the most perilous phase of the buying cycle for customers – what happens after the purchase is concluded.

Regardless of what type of product/service/solution the customer has bought, the next phase is to install/implement the solution in their business in a manner that meets the customer expectations of why they bought the solution. From a customer perspective there are two distinct steps of implementing and implemented in this post-purchase phase of the buying cycle.

During the implementing step the vendor delivers the product/service/solution and the customer commences with implementing the solution as part of their business. Depending on the type of solution this step may be a few days, several months or years. Marketing and sales have typically moved on to finding the next deal and the vendor or third party services/consulting team is in control of the account. While marketing would not engage with a customer in regular marketing activities during this step, it should still closely monitor the situation:

• Welcome the customer to your community – get them plugged into available resources, services, newsletters, forums, etc.
• You want all customers to be referenceable – stay in contact and monitor progress
• Things can and do go wrong in this step – keep a close watch on forums and social media outlets for any signs of dissatisfaction
• Competitors may still be trolling around – it’s tough to win a deal, stay engaged to make sure you keep the deal.

Once the solution is actively running in an operational mode as part of the customer’s business without outside assistance, it’s considered implemented. Vendor engagement with customers typically shifts to support services as the primary point of contact. Every customer should be a prospective buyer for more:

• Define what ‘more’ means in your business – product, add-ons, users, services, up-sell, cross-sell, etc.
• Run specific marketing campaigns and sales programs to sell more to existing customers
• Get the customer into your reference program
• Stay in contact via newsletters, forums, customer groups, etc.
• Ensure that support services are trained to recognize opportunities for selling more.

Staying engaged after the sale in an appropriate manner correlated to the buying cycle steps is the first step to harvest the potential lifetime value of each customer.

How do you stay engaged with customers after the sale?

The next post is the last in this series covering the Achievement and Loyal Customer steps of the customer buying cycle.

The next post explores the

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Buying Cycle – Moving to Decision and Purchase

Continuing the review of the customer buying cycle, this post explores the Decision and Purchase steps in the B2B customer buying process.

In the Decision step, the buyer evaluates the short list of potential solutions to determine which one to buy. The evaluation process usually includes a number of requirements for each potential vendor to qualify the suitability of their solution. Although not explicitly listed in the evaluation criteria, trust plays a major role during this decision process – whether the prospective buyer trusts the vendor company, product, salesperson and others they have met, to deliver what they want. Trust and credibility should have been developed by sales and marketing prior to this step and reinforced during the decision process.

Sales should be in control of all interactions with the prospective buyer at this stage and Marketing should support sales as needed:

• Remove the prospect from the regular outbound marketing process – coordinate specific marketing activity with sales to support the decision process
• Ensure that any inbound marketing processes are aware of the prospective buyer’s status should anything for that company come in
• Support sales with competitive intelligence, win/loss analysis, landmines to set and competitor landmine responses for the short list contenders
• Customer references are usually requested at this stage – proactively managing the references engagement process is critical to ensure a favorable review.

The prospective buyer could decide not to proceed with any purchase for a variety of reasons.

If the buyer does select your product/service/solution, the next step is to proceed with the Purchase step. Sales are in control of the purchase process and marketing should only engage with the prospective buyer as directed by sales. Although marketing are usually not directly involved with the purchase process, there are previous decisions from marketing and product management that significantly influence the purchase decision:

• Packaging – how the product/service/solution is packaged, sold/licensed, various buyer options, terms, conditions, etc.
• Pricing – how the product/service/solution is priced and current pricing.

Ensure that sales were previously trained on all aspects packaging, pricing and what aspects are negotiable or not. Getting feedback from sales and customers on any pros and cons of packaging and pricing should be part of your continuous improvement process to be responsive to changing market conditions and customer expectations.

Regardless of the outcome from the decision and purchase steps, be sure to collect win/loss data for learning, analysis and future use.

The next post looks at the Implementing and Implemented steps in the post-purchase phase of the customer buying cycle.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Buying Cycle – Interest, Research & Consideration

The previous post covered the first two steps of the buying cycle to move prospective buyers from the sidelines to awareness. This post explores the next three steps of Interest, Research and Consideration in the B2B customer buying process.

During the interest step, the prospective buyer makes the connection between a problem or opportunity and the need for a particular product/service/solution. This may happen from either direction:

• An internally known problem or opportunity that needs to be resolved. The prospective buyer initiates the interest. This is what most marketing and sales organizations tend to look for, but it may only represent a small part of all potential opportunities.
• An external source instigates the solution need for an overlooked problem or opportunity. Most companies have many unresolved problems and opportunities but don’t take action because of entrenched processes and/or daily workload priorities. If your marketing and sales outreach can instigate the interest, you’ll have the inside track for the sale.

Now that the prospective buyer has identified the need, the next step is research to determine the right product/service/solution for their needs:

• Internally, to determine and get agreement on the specific requirements of what would be the right solution for the problem or opportunity. Companies frequently use consultants, mavens or other trusted sources to assist with defining requirements. Marketing needs to ensure that these third parties have a good understanding of your solution.
• Externally, to determine a list of possible solutions and suppliers. This is usually a long list of all relevant possibilities. If you have educational and authoritative materials readily availability from multiple sources to support this research activity, you can shape the requirements to align with your value proposition.

Once the buyer has the requirements of what is needed and a long list of possible solutions and suppliers, they’ll move to the consideration step. This is where sales and marketing usually become actively involved with the prospect, but can also be a point of disconnect. The buyer wants to get more information, do comparisons and analyze which are the top 2 or 3 most suitable solutions to move into the next step for making a decision. Some common disconnects for sales and marketing to consider during this step:

• The buyer is looking for specific information which may only be accessible from your company after providing registration information on your website. If they register, does marketing respond to their specific circumstances or are they just dropped into the lead generation process?
• Sales want to get into selling mode, but what may be most beneficial for the prospective buyer is consultative guidance from industry/domain experts in your pre-sales organization. Showing the knowledge and expertise your company can provide is the most effective sales approach during this step.
• The buyer gets disconnected from the underlying business objectives with information overload during the comparison and analysis process. Discussions with the buyer should focus on the business problem or opportunity and the value your solution provides.

Interest, awareness and consideration are separate process in the buying cycle that buyers typically work through. Recognizing these steps in your marketing, sales and lead management processes can help you better connect with prospective buyers.

The next post explores the Decision and Purchase steps in the B2B customer buying process.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Buying Cycle – Sideline Goldmine

Last week I posted the first in a series blogs about how marketing and sales should engage with the customer’s buying cycle to uncover and align with opportunities from the prospective buyer’s perspective. This post delves into the first two steps of Sidelines and Awareness in the B2B customer buying process.

There are two distinct groups of prospective buyers with different characteristics:

1. Existing Customers who have bought something from you previously but are not considering any additional purchases.
2. Prospective Customers who fit your target market but have never bought from you before and not actively looking to buy anything related to what you’re selling.

The vast majority of your prospective buyers are on the sidelines not actively looking to buy anything related to what you’re selling. The opportunity is to move them to the next step of awareness using tactics such as:

• Monthly newsletters to existing customers and opt-in subscriber list that highlights the potential value of your various offerings.
• Educational white papers and eBooks to create awareness about the challenge or opportunity these companies face and potential solution approaches.
• Article marketing in relevant publications and online properties to create awareness and establish credibility.
• Regular webcasts with educational value to create awareness, develop thought leadership and establish credibility in the target market(s).
• Salesperson calls or visits to existing customers – not specifically to sell something – just being visible and engaged is a great way to generate awareness.

Prospective buyers in the awareness phase are aware of the general category or type of product/service/solution you are selling, but have not identified a need for it yet. The opportunity is to move them to the next step of interest:

• IMO, one of the most effective methods to stir prospective buyer interest is the “others like me” approach.
• Show them how other companies similar to theirs have solved problems and achieved greater success.
• Show them how others in roles like theirs have achieved personal recognition and success by making their companies successful.
• Use selected case studies and video testimonials specifically targeted to the interest you want to generate.
• Depending on the service/product/solution, assessment or benchmarking tools for prospective buyers to gauge themselves against best in class peers are also effective for generating interest to move to the next step.

What methods have you found to be effective for identifying and moving prospective buyers along the buying cycle in these early phases?

The next post explores the Interest, Research and Consideration steps in the B2B customer buying process.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

The Buying Cycle Disconnect

Talk to salespeople about their process to engage with prospective buyers and you’ll hear all about the sales methodology and sales life cycle they use. Marketing also has a life cycle for designing, developing, launching and executing campaigns plus another life cycle for managing, nurturing and distributing leads. These life cycles are all necessary and important.

However, these are all inside-out processes on how you want to engage with prospective buyers or how they should engage with you. That’s an unrealistic perspective.

Prospective buyers have their own buying life cycle that they will follow. Whether or not it’s a defined methodology, all B2B buyers will follow a similar process for acquiring whatever product/service/solution they need. Customers want to go through their buying life cycle processes and will buy when they are ready. You can achieve much better results by understanding and connecting with your prospective customer’s buying life cycle. I’m not suggesting you put the customer in the driver’s seat – sales still needs to manage and control the process, but to better align your marketing and sales processes with the buying cycle and the outside-in perspective.

Although buying cycles vary by industry, product, service, solution, etc. there are common processes that most buyers want to step through. The diagram to the right outlines the major steps in a generalized B2B customer buying process:

1. Sidelines – the vast majority of your prospective buyers are sitting on the sidelines, not actively looking to buy anything related to what you’re selling.
   
2. Awareness – prospective buyers are aware of the general category or type of product/service/solution you are selling, but have not identified a need for it yet.
3. Interest – the prospective buyer has identified a problem or opportunity that needs to be addressed and explores the issue in greater depth.
4. Research – the prospective buyer defines their requirements and actively researches a long list of possible solutions for the identified problem or opportunity.
5. Consideration – the prospective buyer finds suitable solution sources, gets more detailed information and does comparisons to compile a short list of possible solutions.
6. Decision – the short list solutions are evaluated in various ways including customer defined demonstrations, tests, in-depth analysis and other methods to find the most suitable solution. The buyer could also decide not to buy anything. Marketing is usually disengaged at this point.
7. Purchase – the purchase is made and everyone is happy for a fleeting moment. Sales usually disengage at this point.
8. Implementing – the implementation process to get the solution installed and working for the customer in the manner they expect. Vendor or third party professional services usually assist customers with this step.
9. Implemented – the solution is actively working for the customer. Vendor engagement with customers is primarily through support services from this point forward.
10. Achievement – the customer (hopefully) begins to realize the benefits they set out to achieve from the solution.
11. Loyal Customer – cultivating a satisfied and loyal customer has many benefits including additional purchases and referrals.
    

Although some of these steps in the buying cycle may seem beyond the interests of a marketing and sales discussion, I’ve specifically included them because they are frequently overlooked opportunities for marketing and/or sales to be engaged.

In the next several blog posts, I’ll delve into each step in more detail to explore how marketing and sales can engage more effectively and productively in the customer buying cycle to produce better results.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

How do you define Customer Value?

I’ve referred to customer value in several of my previous blog posts. The key point being that marketing should always clearly articulate the value of the product/service/solution within the customer’s context.

But what does ‘value’ within a customer context really mean and how do you define it? James Womack & Daniel Jones who popularized the Lean Enterprise business approach, define 6 attributes of customer value in their book ‘Lean Solutions: How Companies and Customers Can Create Value and Wealth Together’. Because these attributes of customer value are defined from the customer’s perspective, they can provide valuable insights for how we should position, message and market our products/services/solutions.

The 6 attributes of customer value defined by Womack & Jones along with my marketing perspective interpretations are:

1. Solve my problem completely – define exactly what customer challenges or opportunities your product/service/solution addresses, the extent to which it does, how it does it and how it works with other solutions. Don’t leave the customer in doubt or searching for additional information.
2. Don't waste my time – get to the point and don’t make the customer have to do things you want in order to get the information they want. Remember that their buying process takes precedence over your marketing or sales process – they’ll go somewhere else if you waste their time by making them jump through hoops to get information.
3. Provide exactly what I want – your product/service/solution should have packaging flexibility according to how customers want to buy, not how you want to sell. Make it easy for customers to buy just what they want right now – they’ll be more inclined to buy more subsequently.
4. Deliver value where I want it – clearly define at what point(s) in the customer’s business value stream your product/service/solution delivers value. Overly broad or vague claims of applicability and functionality don’t connect with specific customer requirements or how the customer envisions a solution that would benefit their business.
5. Supply value when I want it – not all your prospective customers are ready buy at the same time and definitely not immediately. The important issue here is to gear your marketing programs to the various time frames your prospective customers have for buying and helping them reach that point.
6. Reduce the number of decisions I must make to solve my problems – business customers buy something to solve a problem or pursue an opportunity. Offering too many choices, options and alternatives only makes things more complicated for customers to make a buying decision. Communicate with prospective buyers in their context and avoid unnecessary complications or decisions they need to make.

Remember that the interpretations for each attribute are just my views – think about how you would interpret these attributes to your circumstances.

“Value can only be defined by the ultimate customer’ – James Womack & Daniel Jones

Understanding and defining customer value is a key part of being outside-in as discussed in an earlier post. Considering these 6 attributes of customer value during our various marketing processes should help us connect more effectively with prospective buyers.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

You’re Selling What to Whom?

Here’s an interesting bit of low-cost research that could provide valuable insights into whether various people in your organization really understand your value proposition and market position. Ask two simple questions:

• What are you selling?
• Who are your buyers?

Start with the marketing and sales organizations. Ask the questions individually and record the answers verbatim. Doing this in person either face-to-face or on a phone call as an interview wherever you can provides additional insights to observe how people respond. A simple online survey can be used for people who can’t be reached personally. IMO, interviews are more effective than surveys for this type of research.

Besides providing the obvious measure of how well the market positioning, messaging and value propositions from marketing are understood, this little research project can yield interesting additional insights.

In response to “what are you selling?” IMO the only valid answers are those that describe what is being sold in the context of the value defined by customer. So, instead of the more typical answer of “I’m selling a world-class inventory management solution”, a customer value oriented answer might be “I’m providing our customers the means to increase their customer service levels by at least 10% without increasing their investment in inventory”.

"In the factory we make cosmetics; in the store we sell hope."
– Charles Revson (founder of Revlon Cosmetics)

The “who are your buyers?” is intended to determine who in your organization really understands the qualification characteristics of the right prospective buyers. Good answers should include the multiple dimensions of industry, market segment, company demographics, psychographics and buyer profiles of the individuals involved in making the buying decisions.

Ask the CEO, COO, CFO and other functional areas these same questions – you might be surprised by some of the answers.

For the only answers that really matter, ask your customers what value they perceived they were buying with your product/service/solution. Ask them who was involved in the decision process and why they made this choice.

You should have a lot of interesting data points and insights to reconcile from this project. Marketing is responsible for ensuring that the company has the right positioning, messaging and customer value propositions, but more importantly that everyone in the organization is in agreement and understands how this applies to their role.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Trying to get a handle on Company Psychographics?

I received several emails in response to my last post ‘Do Psychographics work in B2B Marketing & Sales?’ about developing psychographic profiles for market segments or companies to complement existing demographic data.

Given that psychographics classify prospective buyers by psychological attitudes such as aspirations, interests, attitudes, opinions, etc., how does this apply to companies when you’re in B2B marketing and sales? IMO, companies do project a psychographic image or behavior pattern that goes beyond normal demographics – take IBM as an example signaling moving to a services-oriented business earlier this decade, followed by on-demand computing services mid-decade and the current focus on sustainability. For suppliers selling to IBM, those are powerful signals of what and how to position their solutions to IBM relative to how the company views itself in the market.

One email came from an ex-colleague and business acquaintance Charlie Allieri who is co-founder of iLantern, a provider of Sales Knowledge Management services. iLantern provides a service that monitors events associated with targeted companies to produce information alerts that signal activities that can influence sales opportunities at those companies. These events include executive staff changes, executive quotes, mergers, acquisitions, product announcements, alliances, awards, sales deals, business expansion, and many others.

Charlie’s point, within the company psychographic discussion, is that if marketing and sales were to analyze this event information more strategically, they could build a very insightful psychographic profile of their major customer and prospect companies. iLantern services primarily provide salespeople with really valuable and actionable current information and insights in their accounts, Charlie makes a good point that this information can also provide more strategic insights for marketing. Applying the information from a number of companies in a particular vertical industry or market segment can glean additional industry insights that are not reflected in any demographic data.

“No great marketing decisions have ever been made on quantitative data” – John Scully

Another really interesting part of the iLantern service for marketing is that you can automatically associate specific marketing materials and messaging with designated events for sales to take action. So, if a particular event occurs at a company in a target market segment, the service can alert the salesperson to invite the relevant person to a webinar, or send them a white paper, or mention a specific solution, or any scenario you wish to define. The salesperson gets the alert with a predefined script and email with the designated material(s) to contact the person in question at that company.

Company psychographics can give you a competitive edge in today’s tough market by identifying company events that signal a potential opportunity or to stop wasting time and resources on companies sending the wrong type of signals.

What do you think about this type of approach for developing and using company psychographics? Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Do Psychographics work in B2B Marketing & Sales?

B2B marketers regularly use demographic data of tangible characteristics such as company size, industry classification, number of employees, etc. to segment and target relevant markets. While B2C marketers do use demographics, they also use psychographics to really understand what interests their prospective buyers. Psychographics classifies prospective buyers by psychological attitudes such as aspirations, interests, attitudes, opinions, etc. From a marketing perspective, demographics define what buyers commonly need whereas psychographics define what specific groups of buyers want.

From what I’ve experienced and seen, B2B marketers typically make little or no use of psychographics. The supposed issue is that you’re selling to a business, so there are no psychographics. IMO, that’s wrong and B2B marketers are missing out on connecting with the real context of their prospects and customers.

I see an over-reliance by B2B marketers on industry classifications (SIC, NAICS, NACE, etc.) and company size (revenue, employee count) demographic data for market segmentation without relevant psychographic qualification. A CEO/President of a $50m company doesn’t think of his/her business as ‘small’ – they may see the company an innovative market leader in their vertical industry and market. Their solution requirements may be very different from what the ‘small’ demographic typically defines. While the standard industry classification may tell part of the story, it provides you with same analysis as your competitors and no qualitative differentiation for defining your market segments. The point here is that the product, service, solution that a group of companies really want could be quite different from what the broader pack needs.

“Continue to surprise those who would put you in a neat demographic. Be insistently curious.” – Gordon Gee

The other aspect of psychographics in B2B marketing and selling is that your prospective buyers, influencers and decision makers are real people with psychographic profiles. The production manager may view him/herself as the de-facto COO with broader purview in the business, or the material planner may aspire to be the production manager. You need to market and sell to the views, aspirations and interests of the people who will ultimately decide whether or not to buy your stuff. Does your value proposition and solution support these views, aspirations, opinions and interests? The material planner, who is probably an influencer, will only support your solution if he/she can see it directly supporting their aspiration to be production manager.

You can’t just go out and buy psychographic data like we buy demographic data – it generally requires primary research. This is actually a good thing since the primary research will be tailored to your situation, providing valuable data and analysis to really differentiate yourself from competitors and connect more specifically with buyers in target markets. The primary research doesn’t have to be a major expense – a well constructed online survey can provide good data.

If you are a B2B marketer, do you use psychographics and if so, how do you collect the data, and how has this worked for you?

As always, your comments are welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Breathing our own exhaust?

An ex-colleague who read my recent post ‘Are you Inside-out or Outside-in?’, sent me an email about an expression I use that he really liked – “are we breathing our own exhaust?”. This expression relates to being outside-in and the acid test we should always apply when we launch a campaign, write content or promote a specific value proposition – does this really create value for the customer within their context?

It’s all too easy to get carried away with all the internal hype from product management, development, marketing and other internal sources. Add to this management pressure to produce better results, time constraints for marketing to deliver, continual daily interactions between marketing team members, and we easily slip into blindly believing ourselves without outside validation – or to put it more bluntly – breathing our own exhaust.

Problem is, it’s not always apparent that we may have this problem, since we may be too close to the situation to step back and recognize it. However, if we don’t recognize it before the campaign, content or promotion is launched, we’ll inevitably face a mediocre result at best or abject failure at worst.

During the review process for any campaign, promotion, content or other marketing output, always ask questions to qualify whether it really connects with the prospective buyer within their context and current circumstances:

• What research do you have to support this?
• How was this tested?
• What did the test reveal?
• What outside-in validation do you have?
• What are competitors doing? How does this compare – what is different or similar?
• Ask the ‘breathing our own exhaust’ question – it’s a fun question that isn’t easy to answer and usually gets a good discussion going.

This is just a starter list of the type of questions to consider – develop your own to suit your circumstances. Be careful not make it feel like an inquisition; just ask good questions to do some constructive self analysis to ensure that the campaign, promotion, content, etc. is on the right track.

“The question should be, 'Is it worth trying to do?' not 'Can it be done?'” – Allard Lowenstein

An approach I particularly like that helps avoid the typical ‘breathing our own exhaust’ syndrome is to have a geographically distributed marketing team. That way, everyone has different daily exposures, interactions and perspectives and are less prone to breathing each other’s exhaust in the same location day in and day out. Having input from these different daily experiences will also add more value to the creativity and review processes.

Ask the ‘breathing our own exhaust’ question or your variation of it when something is being developed – ask yourself, ask you team members, ask the group.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

What’s a VP/Director/Manager of Sales & Marketing?

I know what a VP/Director/Manager of Sales does, I know what a VP/Director/Manager of Marketing does, but I’ve always been somewhat perplexed about what a VP/Director/Manager of Sales & Marketing does. Over the years, whenever I meet someone with a ‘Sales & Marketing’ title I usually try to have some conversation about their job to find out more about their role. Without exception the person in that role is a salesperson with primary responsibility for sales. A quick review of current VP/Director/Manager of Sales & Marketing job postings confirms that the requirements for these positions are primarily sales related.

Based on my anecdotal research, the Sales & Marketing organization is really a sales organization with a small marketing functional area in a secondary, supportive role usually responsible for primarily two types of deliverables:

1. Lead generation – generally a more tactical function than you would find in a full-fledged marketing organization. Focus and performance measurement is on driving the volume of leads into the top of the sales funnel needed to eventually and hopefully produce the required volume of sales from the bottom of the funnel.
2. Sales collateral – production of tactical collateral such as brochures, datasheets, product overviews, case studies, etc. used during the sales process.

"The Sales/Marketing Manager is like an amphicar (amphibious car). Great idea, but what you really get is a highly ineffective car and a highly ineffective boat." – Mark Goff

The marketing functional area in this type of organization generally doesn’t have the bandwidth, budget or management support for a market-driven approach or a more strategic marketing role. However, the marketing functional area in these organizations can add more value and some strategic direction to help sales be more effective and productive:

• While the performance measure for lead generation is on volume into the sales funnel, marketing should add research, analysis and segmentation to drive more targeted and relevant leads. Sales will appreciate not wasting time and effort chasing 100 leads with a 2% probability of closing versus focusing on 30 more targeted leads with a 10% probability of closing.
• For the collateral, marketing should add value to make the materials more appropriate for the intended audience and provide guidance to sales for using the materials more effectively:
• Strategic messaging aligned with the value your stuff creates for customers should be used consistently in the materials.
• Develop the materials to align for use at the various stages of the sales cycle. It’s not ‘show up and throw up’ as many salespeople are inclined – guide salespeople on which materials to use at each stage of the sales cycle to help move the buyer to the next stage.
• Company website – if you haven’t already, take control of the company website and make it a marketing vehicle that all business websites should be.
  

In spite of marketing usually being in a tactical, supportive role reporting to a VP/Director/Manager of Sales & Marketing, there are several ways for marketing to add more value, help sales be more effective, improve results and ultimately raise the stature of marketing in these organizations.

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

Marketing in a ‘Customer-driven’ company

Following on from my previous three posts on company culture drivers; this post looks at the ‘customer-driven’ company and how Marketing functions in this type of environment.

This is not about being customer focused, providing great customer service, creating value for your customers, listening to customers and all the other good things related to taking excellent care of your customers. This context of customer-driven is about companies who are slavishly dedicated to serving their customers to the extent that their business strategy and culture is driven by their customers.

The customer-driven company culture is prevalent in smaller companies where the founder started the company with a contract for the first customer, added more customers, grew the business, but essentially does what the customers want. There are however a surprising number of large and public companies who are basically customer-driven. A key characteristic is that the company is dependent on a relatively small number of customers for the vast majority of its revenue. So, while customers get ultimate service and attention, the company has limited scalability, high risk exposure to various changes in customer companies and limited control over product and go-to-market strategy.

“You can't just ask customers what they want and then try to give that to them.
By the time you get it built, they'll want something new.” Steve Jobs

These companies are likely to have a collection of ‘markets of one’ – i.e. each customer (or small sub-group of customers) is essentially its own market segment. While there is usually a common thread across these customers, they don’t comprise a market in the usual manner. These ‘markets of one’ and lack of the usual market scalability, heavily influence marketing options and approaches.

Marketing in these companies seems to be focused on two main areas:

1. Retention – while customer retention should be a high priority for all companies, it is particularly critical for companies that depend on a relative small number of customers. Marketing programs such as newsletters, free educational events, customer conferences, satisfaction surveys and featuring customers in trade publication articles appear to be most common. If customers pay recurring support or maintenance or other types of retainer fees, then marketing must run programs that emphasize the value customers receive from these fees.
2. Cross-Selling – marketing campaigns to sell more products and/or services to existing customers. The key is to focus on complementary or additive solutions relevant to each customer’s situation.
   

New customer acquisitions tend to be more opportunistic and generally not driven by a significant marketing campaign.

A good approach for improving marketing effectiveness in customer-driven companies is to reach more people in different roles in customer companies. But you shouldn’t just send the same stuff to more people – it should be personalized and/or role-based materials that connect to each individual’s responsibilities. This will enable developing greater exposure, more customer advocates, more buyers and ultimately better retention and more sales from existing customers.

Do you work in a customer-driven company as defined here – what’s your marketing approach?
(use the comment link below to share your thoughts on this topic)

Next post, a look at marketing in a market-driven company.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Marketing in a ‘Sales-driven’ company

Following on from my previous posts How is your company ‘driven’? and Marketing in a Competitor-driven company – this post looks at the ‘sales-driven’ company and how Marketing functions in this type of company culture.

The message and emphasis from the chief person(s) who establish the sales-driven culture is that Sales are in charge and they need to get out and sell something and have marketing support them. That means that the sales teams are generally empowered to pursue whatever business they can and sign deals for just about any products and potential customers.

Salespeople typically do what they’re comfortable with and done for years – they sell in the same way that worked before. Markets shift, demand dries up, customers move on, but Sales keeps plugging away doing what they’ve always done. Marketing is viewed as supporting sales, to provide collateral, generate leads, help respond to RFPs, and other tactical functions.

“More great Americans were failures than they were successes. They mostly spent
their lives in not having a buyer for what they had for sale.” Gertrude Stein

I think sales-driven is the most challenging environment for Marketing. In many cases, the head of Marketing reports to the COO who in many organizations is really the head of sales. While the marketing operational activities to generate leads are understood and mostly appreciated by Sales in a sales-driven company, it is the positioning, messaging, value propositions and other strategic direction that is challenging for marketing to get buy-in from sales.

Marketing should and usually wants to provide direction on what to sell, where to sell it, who to sell it to, how to sell it, why customers would buy, and other strategies to be more effective and productive, by directing and enabling Sales to pursue the right opportunities in a manner that connects with current market circumstances. However, sales-driven companies are more inclined to rather add channel capacity to drive more sales even though it’s less effective long term. I cringe when marketing runs a campaign for a very specific value proposition, prospects raise their hands, marketing cultivates the leads, and then the salesperson engages a prospect with “so, you’re interested in buying our super-duper (or whatever) product…”.

The other challenge is that product direction is often driven by the needs of current prospects to get a sale – not a good direction for long-term business success.

Don’t get me wrong, Marketing is there to drive sales revenue and new opportunities for the company and enable Sales be successful. However, a sales-driven culture obstructs and constrains Marketing from being a truly effective and valuable contributor to the long-term company success – more on this in an upcoming post on being market-driven.

Seems to me that sales-driven is the default way to go for many companies?

Do you work in a sales-driven company – what’s your marketing approach, how do you deal with these challenges?
(use the comments link below to share your thoughts on this topic)

Next post, a look at marketing in a customer-driven company.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com