Category Proliferation

How many products can exist in a single category? Great question… the answer is “it depends.” Key questions include how big is the category, what are the critical needs which drive the category and are they all being met, what specialty niches exist given the needs analysis, etc. Having said that, let’s look at an example of over population of a category….

I remember growing up and knowing every car on the road. Not only every make and model, but every year! Try that today! What are the real and meaningful differences between all the models on the market? According to Edmunds.com there are 93 different SUV’s, 131 different Sedans, and even 51 convertibles! Can you imagine sorting through all these choices and trying to determine what makes each vehicle really unique within its class? O.K., so you can sort SUV’s by Compact’s, Mid-sized, and large and then again by Crossover, Luxury, etc. But the choices are truly mind-numbing.

So, if you are involved in a category, and are looking to either introduce a new product or grow your business make sure you really understand what makes your product different and better then competition and make sure you communicate that message with clarity! Otherwise, welcome to the morass of mediocrity!

Rich

Bizvice: Strategy, Marketing & Entrepreneurship

Deal or No Deal?

No this is not about the current TV show.  Rather if you are either in the personal services business or considering entering this business arena, the question of pricing your service is bound to come up.  This is especially true in the early stages of your Company’s development… should you take projects for a “lower price” just to keep the lights on and get your “foot in the door”?  Thus, Deal or No Deal.

Let’s examine how best to price your service.  Start with how much money you feel you need to support your Company.  Let’s assume it is just you, your dog, and the phone.  And, let’s assume you would like to make $100,000 per year and your total costs including you, the phone, and the dog are $125,000 per year.  In order to make $125,000 how much do you need to charge your clients?  Most people starting out would simply divide the $125,000 by 52 weeks and thus assume you need to make $2400 per week or $480 per day given a 5 day work week.  Simple, straight forward but wrong! 

Why is it wrong?  Let’s start with the number of days you will work… yes, it is possible to work on a clients business for 5 days a week… but not for 52 weeks.   What about vacation?  What about holidays?  What about sick days?  So, instead of assuming 52 weeks times 5 days or a total of 260 days, I suggest you use 180 days which assumes 20 days of vacation, and 60 days for holidays and sick days.  Sounds like to many holidays and sick days?  It is only 5 days per month… don’t forget some holidays are more then one day (e.g.: thanksgiving, Christmas, New Years, etc.).  So, to be safe, assume 180 actual work days. 

Now as you can see, to generate the same $125,000 per year, you will have to charge $695 per day and not the $480 per day in or original estimate.   Let’s take it one step further… within the 180 days available you will need to be doing some non-billable work such as selling, administrative paperwork, visiting the bank, taking the dog to the vet, etc.  Thus you need to develop your best estimate for how many actual billable days you might work…  this is called the “utilization rate.”   Let’s assume that your utilization rate will only be 50% since you will be spending a significant amount of your time selling…especially in the early years.   On that basis, you will need to charge $1390 per day for your services.  So, we have gone from $480 per day to $1390 per day just to get you the revenue that you feel you need.

As you build your organization, the same factors are in play for each employee who is billable.   Thus you need to create a business model which provides leverage across the organization to begin to generate the income necessary to both operate the business including all overheads and generate a profit.

I once did this exercise with a client who was in the service business for about 3 years and demonstrated that at his then current billing rate, he would never make enough money to live.  With input like the above he changed his business model and became very successful and highly profitable within six months.

Your comments and questions are always welcome.

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

Culture In A New Company

How important is Culture in your new start-up Company? I believe it is vital and may well define whether you are successful in your new enterprise. You need to define what type of Company you want vis-a-vis its Culture. In order to do that you need to understand what you believe in as it relates to your Company and how it will operate. Such areas you should think about might include:

1. Employees: What type(s) of employees would you like to see join the Company? “Yes” men/women who agree with all of your positions? Free spirits who walk to the beat of their own drummers? Challengers who are not afraid to examine the status quo and ask why? Secretive or up-front personalities? etc., etc.

2. Policies: How will you treat your employees? If you are in the personal services business will you provide your employees with significant financial, benefit and other packages to ensure they are happy and motivated? Will you give them the opportunity to share in the Company’s success with ownership? Will you involve them in the key decisions facing the Company and its future? Will you be a “dictator” or a manager of a collegial environment? Will you share the Company’s finances with all employees on a regular basis?

3. Customers: What will be your philosophy towards your customers? Will they be “partners” whose counsel you will seek? Will everyone in your Company adopt a customer centric model which recognizes that without highly satisfied Customers, there is no Company? Will you work with your customers to satisfy their needs versus yours? Will you insist on delivering the highest possible quality service or product to your customers day in and day out?

All of these questions/issues need to be addressed since they all impact the culture of your Company. I obviously believe in a certain culture which has worked for me. But it is up to you to define what you believe will work for you!

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

What’s Your Best Position?

When considering starting a business or launching a new product choosing how you want to position that product or service in the marketplace is very critical.  If you are dealing with consumers as the end users, the question you need to answer is how do you want consumers to think about your product.  For example if you say Rolls Royce most people would say “the best car in the world.”  If you say Tide, many people would say “the best laundry product.”

How do you develop a position?  There are three key elements:

1.  Market Segment:  In which market do you want your product to compete within?  And within that market which specific segment?  Let’s say you are going to launch a new drink which has health benefits.  Then your overall Market is the “liquid refreshment” market, and the specific segment you are going to appeal to is the “Health and Wellness” segment.  Specificity is critical in the selection of your Market Segment.

2.  Target Market:  To which group of consumers/customers will you be trying to appeal.  In the case of the “health and Wellness” product, your target market will probably be Consumers between 18 and 35 who care about their overall health and well being.  Identifying your target market will help focus your marketing, product, and packaging  strategies among others.

3.  Point of Difference:  I have talked about this on more then one occasion.  But it is at the core of any successful product or service.  Why is your product or service better then any other product or service within your Market Segment.  And, importantly, what is the support for your claims of superiority.

So, the combination of your Market Segment, Target Market, and Point of Difference, represents the “core” of your product or service since it ultimately defines what your product is in the minds of your customers.

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship 

If You Build It, They Will Come

A great movie but is it realistic in today’s world? So, you have developed an unbelievable product or service, like none other on the face of the planet. You have had it patented and it clearly satisfies a real need in the marketplace. So, now you can sit back and watch the orders and money roll in… right??? Dream on. Your work has only started. Where is your marketing plan? What about your sales plan? How will you distribute the product? And, how will customers and consumers find out about your product?

On the flip side, as can be seen by the recent successes of You Tube and Google, the Internet has really provided an enormous distribution channel which is instantly available to millions of people. When in the history of business have we seen such accumulation of wealth in such a short period of time? So, the Internet, for some products and services may represent what TV represented in the 50’s. Having said that, it does not mean you will not need a realistic marketing and sales plan to capture the marketplace. Indeed, given all of the new businesses and services available over the Internet, you will need such plans even more in order to be seen and heard!
Your comments are always welcome!

Rich

Bizvice: Strategy, Marketing & Entrepreneurship

Politics and Marketing

Why can’t politicians think and behave like marketeers? There are but 13 days left before mid-term elections and all we hear is negatives. I believe each politician should examine what he/she stands for and then tell us. This is no different then a product or service. We are forced to make choices every day. We base our choices on what we believe a product and/or service uniquely delivers.

So what do politicians stand for? For most, I have no idea… rather then talking about what they believe in and what they will do for their constituents, they spend their time and money on bashing the other guys. Could you imagine if Coke spent all their money telling us why Pepsi is bad? Or Chevy spent their advertising dollars pointing out all the weaknesses of Ford?

This is “no way to run a railroad.” It will probably never change, but if politicians spent some time marketing a product or service maybe they would get it….. One can always hope!

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

“Bribes”

O.K… so it is a bit radical to call “incentives” “bribes”… but isn’t that really what they are? Furthermore, who really benefits from these incentives? I am talking about the cash rebates, coupons, sweepstakes, etc., that are constantly being thrust on our society. I believe that manufacturers see a benefit in conducting these campaigns and have done so for well over 100 years.

The truth is very few companies really know what real benefit they derive from these incentives. Do they attract new users or just subsidize loyal purchasers? And to what degree? If they attract new users, are those customers likely to stay with the product long-term?

Sometimes we should all “be careful what we wish for”…. or, we may get it! An old saying but true. Let’s look at the airline business. Remember when American Airlines introduced their frequent flier program. Fairly radical at the time. The goal was obviously to increase loyalty… particularly among business travellers. So, what happened? Every airline copied that program and today, every airline is “stuck” with billions of unredeemed miles as a potential liability. Over the years they have all tried numerous ways to “modify” their programs to help ameliorate this problem such as less “free” seats available for flights, miles redeemable for gifts, etc. Nevertheless, the “problem” still exists and each program looks just like the others. This is the commoditization of an incentive if I have ever seen one!

What about coupons… every weekend you can find dozens of coupons in your Sunday paper. Who really redeems those coupons. On most products, my bet is loyal customers are the ones redeeming or totally disloyal consumers looking for a “bargain.”

So, is there a real role for incentives? Of course… and each case varies. But, you need to clearly understand your strategy (e.g.: trial versus continuity, versus loading, etc.) and know the risks of your incentive programs before you dive into this potential cesspool.

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

100% Market Share

Dream on…. but how much share is reasonable? When starting a business or adding a new product or service line, one critical step in the planning process (and, indeed, in the decision to enter that market) is how much share of that market can you acquire. Let’s start from the beginning:

1. How big is the market? Is the market growing? At what rate? Why… what is driving the growth and is it likely to continue? For how long?

2. How is the market structured? In the area of the market in which you believe you will compete, how many competitors are there and what are their individual shares? If you are going to enter the Automobile business, will you enter as a sub-compact and seek your market at the “low end” of the pricing model? If yes, which Companies/Brands are already competing in that market niche?

3. Which potential competitors are growing or declining and why?

4. What are these competitor’s strengths and weaknesses? And, will your Company have a unique competitive advantage which is sustainable against these competitive offerings?

5. Will your new product grow the overall market? (A key question for retailers who may carry your product). If yes, by how much? And, how much will your product take from each competitive brand?

6. Will your projected market share yield a large enough business to support your business model?

Naturally, as you can see, choosing the markets in which you will compete is a critical component of your ultimate success… A great product is not enough…..

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

How Much $ Can We Make

Pricing a product or service is always an art and not a science. It is highly dependent on many factors including:

1. Who is your direct competition and how do they price their product/service?

2. How much better is your product/service then existing offerings? Both real and perceived?

3. What is your overall strategy? Do you want to be a “Luxury” product or a “commodity”…. Pricing helps establish your perceived value. Can your product stand up to the test of higher price due to higher quality?

4. What are your costs to deliver your product/service? Costs should be based upon reasonable market share. Can you be the low cost producer and does that provide any pricing advantage either from a margin or marketplace pricing point of view?

5. Ultimately, how unique is your product/service and how significant is customer demand for this product/service?

Let’s examine a few examples:

I am sure you have all heard of Tickle Me Elmo… it’s latest edition has a MRSP of $39.99…. I urge you to find it for that price in the marketplace. Huge demand for this “unique” product has pushed the price over $100 on some auction sites.

What about Bentley Automobiles…. Is it really worth $175,000? Is it that much better then BMW or Mercedes? Clearly not the low cost producer, Bentley uses the best material (in theory) to deliver one of the best cars in the world…. So, low volume, higher cost of manufacture, ultimate luxury yields high price.

6. Finally, can price be a strategy… Look at the Suave line of products as an example. I submit that low price should never be a strategy. It is easily duplicated and affords no long-term point of differentiation. Even Suave markets their products as providing other benefits beyond price. Playing the price game is a slippery slope which should be avoided.

Comments? Examples?

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

“Far Out”

How many times have you been in a meeting discussing new business opportunities when someone comes up with a great idea that has nothing to do with your existing business? And, how many people in the meeting are ready to jump on the idea and start running? Indeed, how many of those ideas were pursued?

It is so tempting to run after what appears to be a good idea which may not be in the areas where your company has experience or expertise. So, good idea or bad idea to pursue such new business opportunities?

It all depends. If you work for say Kraft, would you suggest a steel mill purchase? Obviously not. But, what if you worked for GM? My belief is that you stick to your knitting… stay within the business systems and models you know. If you are Kraft, stay in the food business…. If GM stay in the transportation business.

Having said the above, if you find a business which is very close to your areas of operation and can provide efficiencies and scalability given your Company’s expertise, then a purchase of a leading Company in that field may make sense. BUT…. avoid businesses which are far afield from what you know… chances of success are very slim. So, stay away from “far out” ideas and businesses.

For opportunities that seem “close” to your Company’s areas of expertise, do your homework. Are those areas growing? Who are the key competitors? Why is your concept better then competition? Can your competitors easily copy your product/service once you launch? What are the barriers to entry in terms of capital? Distribution? Manufacturing? etc.?

So, far out is a no no…..

Comments?????

Rich

P.S…. Here is a “free” idea for e-bay…. where are the restaurants, barber shops, lawn mowing services, painters, etc?????? Where are the service companies????? Hey guys this is a “close in” opportunity that could be BIG……

Bizvice:  Strategy, Marketing & Entrepreneurship