Roadmap To Market 2.0 - A Guide For Marketing Innovation

BusinessExploration
11
Roadmaptomarket,2.0
aguideformarketinginnovation
totheOil&Gas,PowerGenerationandAerospaceindustries
ByFlavioTosi BusinessExploration
2012www.businessexploration.comallrightsreserved Ing.FlavioTosi,AlboIngg.Firenzen3581via8marzo,22Castelfiorentino50051Firenze
BusinessExploration Via8marzo,22 50051Castelfiorentino (Firenze)Italy +393496482225 info@businessexploration.com www.business.exploration.com ANotetotheReader TheRoadmaptoMarket,2.0iscopyrightedbytheauthor:FlavioTosi. Itsaworkinprogressdocument,nowatits8threlease. Youcanduplicateitandshareit. Youcandownloadthelastreleaseatwww.businessexploration.com. Youcancopypartofit,orreproducepartofit,quotingtheauthor: FlavioTosiandthewebsite:www.businessexploration.com. Copyright2013,byFlavioTosiBusinessExploration. Allrightsreserved. Papercopiescanberequestedonthewebsiteat11each, asaprintingcontribution.
2013www.businessexploration.comallrightsreserved Ing.FlavioTosi,AlboIngg.Firenzen3581via8marzo,22Castelfiorentino50051Firenze1/83
INDEX:
Abouttheauthor:.....................................................................................................6 Prefacetothe2.0release:........................................................................................6 Foreword......................................................................................................................7 Introduction:innovating,andnot:innovation.......................................................8 Summary:.................................................................................................................. 10 TheRoadmaptoMarket: ........................................................................................... 11 PART1.DOYOUHAVEACUSTOMER?....................................................................... 11 DoyouhaveaCustomer?..................................................................................... 11 Ifyes,whichpartofthemarketareyouthinkingtoserve? ...................................11 Areyouunderperforming,orareyouoverperforming?.......................................12 Fightingforthetop:............................................................................................ 12 Integratedarchitecture:...................................................................................... 13 Carefullyplanningnottofail:............................................................................. 13 Areyouoverperforming? ...................................................................................... 14 AreyouleavingroomtoaNewEntrant?...............................................................16 IsthereaThreatoranOpportunity?.....................................................................16 CanmyideadisruptthePerformancestrajectorygame?.....................................17 Ismyideabuiltonanew(modular)architecture?................................................18 Isittherighttypeofmodulararchitecture?..........................................................19 Whoisthecustomerofanewmodulararchitecture?..........................................19 Areyougivingawayyourbusinesstoyoursuppliers?...........................................20 Confess:youdonothaveaCustomer,dontyou?.................................................22 Whothehellmaywantit?..................................................................................... 22 TheRoadmaptoMarket: ........................................................................................... 24 PART2.HOWMANYCHANCESTHISINVENTIONHAS?.............................................24 Howmanychancesthisinventionhas?.................................................................24 1/4Isthesolutionappealing?............................................................................... 26 AHowmuchvalueourideacreatestotheCustomer? ........................................26 ACustomermaybein2situations:orithasaGOAL,orithasaPROBLEM.......26 WhoistheCustomer?:FromCustomersneedstoCustomersGoals.....27 Wheredoesthesolutionfit?Whatproblemitsolves?......................................28
2013www.businessexploration.comallrightsreserved 2/83Ing.FlavioTosi,AlboIngg.Firenzen3581via8marzo,22Castelfiorentino50051Firenze
Whichsolutiondowedeliver,andhow?(S.O.R.C.)...........................................30 HowmuchdoesCustomerneedsit?..................................................................34 Whatadvantagesgivesoursolutionvsotherssolutions?.................................35 BWhatPricewillbepaid?................................................................................... 36 Howtosetprices?.............................................................................................. 36 Howmuch?..................................................................................................... 37 Howdoesthepricechange?.............................................................................. 39 Summary:........................................................................................................... 39 CWhatadditionalcostswillbesustainedbytheCustomer?..............................39 Investments:....................................................................................................... 40 Systems:.............................................................................................................. 40 SwitchCosts:....................................................................................................... 40 DSummary:......................................................................................................... 40 2/4IstheSolutionaccessible?................................................................................ 41 AHowwilltheCustomerknowaboutthesolution?...........................................42 DowehaveaclearUniqueSellingProposition(USP)?.......................................42 Isourpropositiondifferentfromanyotheroneinthecustomermind?...........43 Whichmessagewillimpactthecustomermind?...............................................44 HowwilltheCustomergetincontactwiththeidea?.........................................46 Summary:........................................................................................................... 50 BWherewilltheCustomerbuythesolution?.....................................................51 Inourbooks:....................................................................................................... 51 Insomeoneelsesbooks:.................................................................................... 51 CWhichisourSalesCarousel?......................................................................... 52 TheSalesCarousel: .......................................................................................... 53 TheTrafficArena: ................................................................................................ 53 TheEngagementArena...................................................................................... 55 TheConversionarena......................................................................................... 56 3/4Doesprojecteddemandsustaintheinvestments?........................................60 AHowmanypiecescanbesoldinthesolutionslifetime?.................................61 TAMTotalAvailableMarket................................................................................ 61 RAMReachableAvailableMarket ....................................................................... 61
SASServedattractivesegments......................................................................... 62 BHowmanypiecescanwesellinthesolutionslifetime?..................................62 ListingCompetitors:............................................................................................ 63 ScreeningCompetitorsappeal:.......................................................................... 63 Checkingcompetitorsreach:.............................................................................. 63 PreparingtoCompetitionresponse:..................................................................63 Summary:........................................................................................................... 63 CHowordersopportunitieswillchangeinthesolutionslifetime? .....................64 ChangesofDemanddrivers:............................................................................... 64 The5forcesimpactingdemandtrends:.............................................................64 The5culturalfactorsimpactingdemandtrends:...............................................64 HowweimpactShare(Organicsensitivity):.......................................................64 DWhichopportunitiesdowereallysee?............................................................65 Summary:............................................................................................................... 65 4/4Doesthesolutionleaveunitmargins?.............................................................67 AWhicharethemaincosts?............................................................................... 67 Variablecosts: ..................................................................................................... 68 Fixedcosts:......................................................................................................... 68 Investments:....................................................................................................... 68 Synergies&Economies:...................................................................................... 68 BDowehaveaSupplyChainstrategy?...............................................................68 Conclusion:istheinvestmentworth?....................................................................... 69 Part3.WHOTHEHELLMAYWANTIT?...................................................................... 70 Whothehellmaywantit?..................................................................................... 70 DowehaveahintaboutinwhichdirectiontosearchforaCustomer?................71 BlindSearch:....................................................................................................... 71 InformedSearch:................................................................................................ 72 Bidirectionalsearch:........................................................................................... 72 HowwewillrecognizeourCustomer?...................................................................73 TheknownCustomer:........................................................................................ 73 Lowendcustomers:........................................................................................... 73 Noncustomers:.................................................................................................. 73
FakeCustomers:................................................................................................. 74 FoundCustomers:............................................................................................... 74 Whatwemustbereadyfor?.................................................................................. 74 Wheretostart?...................................................................................................... 75 Hireascout:........................................................................................................ 75 Getanhigherpointofview:............................................................................... 75 Followtheriver: .................................................................................................. 75 Meetresidentpopulations:................................................................................ 75 Lookforsmokesignals: ....................................................................................... 76 Beatingthebushes:............................................................................................ 76 Avoidsearchingincircle:.................................................................................... 76 Howtobeatresistance?........................................................................................ 77 Whattypeofresistancewewillencounter?......................................................77 10Resistencestoinnovation:............................................................................. 77 FewWordsaboutinnovation:................................................................................... 78 Whatisinnovation?............................................................................................... 78 Howtheconceptofinnovationevolvedintime:...................................................78 Thewayswereachinnovation:.............................................................................. 79 TIME:IncrementalversusRadicalinnovation.....................................................79 SPACE:ExperimentalversusConceptualinnovation:.........................................80 SOCIAL:CompetitiveversusCollaborativeinnovation:......................................80 Thesourcesofinnovation:..................................................................................... 80 Innovators:.......................................................................................................... 80 Placesofinnovation:.......................................................................................... 81 TheinnovatorsTalents:....................................................................................... 81 Bibliography:............................................................................................................. 83 FEEDBACKS:............................................................................................................... 83
Abouttheauthor:
Since2009,FlavioTosihasbeenhelpingindependentsinnovatorstargetingtheOil& Gas,Energy,Aerospaceindustriestodevelopthepotentialoftheirbusinessideas. When they feel concerned about the risks and the best approach to use for launching a new product or service, or starting a new commercial initiative, he complements their gut and instinct bringing on the table latest methodologies and provenbestpractices. For 12 years he has been a manager of General Electric and previously for 2 years, an engineer in the R&D. Flavio was part of the team that brought to the Oil & Gas market some of the most fascinating technologies of the last decades, gaining a deep understanding of New Product Introduction, Business Process Reengineering andProjectManagementmethodologies. And became passionate of the challenges offered by this industry, having fun discoveringnewsolutionsandideasforhisClients. Youcanfindsomeofthemhere:www.businessexploration.com, oryoucancallFlavioat:+393496482225forapreliminarytalk, withoutanyobligation.
Prefacetothe2.0release:
In the last 4 years as an independent consultant I had to find solutions to my clients thatforcedmetoaddnewconceptstomyapproachtogotomarket. I was looking to something in line with my understandings, something that was capable to add to classic marketing, positioning and sales models, few concepts about markets dynamic of innovation, evolution of technology trajectories, search anddevelopingofmarkets. I found them into Prof. Christensen books, that give me a fully complementary point ofviewwithmyprinciples,bestpracticesandkeyassumptions. So I decide to take the gotomarkets key points from these new concepts and synthesizethemintotheRoadmaptoMarket2.0. IaddedaFirstPart:thatwillhelpdefinewhereyourinnovationlaysinacompetitive andevolvingcontest,anddecideifyouareinthepositiontopursueit. And a Third part: that shall give key principles about exploring for new Customers. This is not my favorite starting point, but I have to admit that sometime you may come up with an idea before to have defined who your customer is. Here you will findfewideaonhowtoexploretofindhim. The Second part: just optimizes and adds some clarification to the Roadmap to Market1.0.Soitisalmostunchanged. As usual: your comments and suggestions and questions will be really appreciated: sendthemtoflavio.tosi@businessexploration.com.Thanks!
Foreword
Ifyoujusthadabrilliantideaforyournextproductorservice,probablynowyouare askingyourselfif:
Ismynewideaworthatry?
Someonetakesthisdecisionjustbygutfeeling.Ienvythemalot.Ineverunderstand ifitispurecourage,insanemadnessorjustamatteroffaith. What I know is that, statistically, more than nine out of ten of those guys fail miserably.Andnotmanyoftheremainingcansinghurrah!asmasterofthemarkets. Probably for this reason, Companies that survive recessions, wars, and technology decay have developed guiding principles and techniques to identify and assess the variablesinvolvedinthisriskydecision. But when I started to look around for them, I found a mess of ideas and tools that confounded and embarrassed. Marketing means a lot of different things to different people, and probably for this reason is a word that has no translation in any language,evenitsown. Ineededsomethingworkable.Asyoudo.IfounditwhenIdecidedtostopsearchfor tools and methodologies capable to give answers and started concentrating on Questions. Therightones. And here they are. A list of questions that will guide you in finding all the elements you need to reduce the risk of failure of your next business venture and maximize thechancetomakeitacceptedtotherightcustomer. FollowingthisRoadmaptoMarketYoucanbecomfortabletotouchmost(ifnotall) the key points in taking the final decision. How You answer each question of the Roadmap is up to you. Can be a simple consideration taken around a coffee with a friend, or a complex statistical study commissioned to top International agencies. But I assure You (for having tested it for years in General Electric as Marketing ManagerandasaBusinessConsultantthereafter)thattheRoadmapiscompleteand lean. It will keep You on track and build the understanding of the market in order to maketherightdecision. Then,tomakethatdecision,Youwillneedabitofgut. ButthisisuptoYou. BuonLavoro! Flavio
Introduction:innovating,andnot:innovation.
Thisbookisaboutinnovating,notabout:innovation. Moreprecisely,ittriestohelpagoodideahitthemarketandgetsold. This part of the innovations journey, the one that goes from when an idea has been invented (found, identified) to when it becomes adopted and creates value, is not reallywelldocumentedinliterature. Is just since few years (since 1997, precisely) that Clayton Christensen has described the path of innovation to market and has characterized some typical routes that are madebythesuccessfulones. Failing to understand the differences among those paths, when they should alternatively pursued, and why making the wrong choice leads to failure, causes to mostoftheInnovatorstowastetimeandresources. Thequestionscollectedhereshouldhelpyoutodecipherthecircumstancesinwhich youareandmaketherightdecisionsaboutwhetherandhowtoproceedtowardthe market. Butwhenwedoinnovate? Innovationis:anewwaytoreachagoal.Ifoundthisdefinitionaboutinnovatingin a paper of Benoit Godin, of INRS Canada, who explained how the concept of innovationevolvedintime. Itstartedmeaning:Change(oftheestablishedbehaviorsoftheuserwhowill adopttheinvention),thenitadded:Rupture(withthepast,notjustdetaching fromit,butmoreprofoundlydestroyingit,toachieveanewanddiversestatus) andlately,inthepastfewcenturies,thewordinnovationhasbeenconnotedwith 2modernelements:creativityandutility. Todayweassigntoaninvention(thecombiningofelementsthatcreatesanew value)thestatusofinnovationonlyiftheinventionbringsinanutility. UtilityinvolvesbothanadoptionbyaCustomer(achangeinhisbehaviors)and theabilityoftheinventiontobemarketable(capabletogenerateanexchangeof value).
Underthislightitbecomesclearthatthestartingpointofanyinnovatingattemptis intheCustomer.Withouthim,thereisnoUtility. Thisiswhythisbookstartswiththequestion:DoyouhaveaCustomer? Thereareonlytwotheoptions: 1)oryoudohaveaCustomer:youhaveanideaaboutwhoishim,andyoualready bargainwiththisfellow. 2)oryouhavenoideaatall,andyouhavetohopetofindhim.
Thisentitlestotwodifferentkindofproblems: Inthefirstcaseyourtaskistominimizethechanceoffailureforyourinvestments. Thereisahugesetofbestpracticesthatcompaniesaroundtheworldhavecollected inordertomaketheinitiativeofbringinganewideatoexistingCustomers,safer. Thesecondoptionismoretricky:becausetheonlywaytodiscoveryourCustomeris totry.Learnyourwaytohimbytrialanderror,beingreadytochangeyourpath whenabetterwayisencountered.Inotherwordsisamatterofexperimenting: maximizetheopportunitiestolearn,whileusingtheminimumamountofmoney andavoidingthechainsthatcanteardownyourflight. Thesetwocoursesofactionseemsselfevident.Andinrealitytheyareequallyviable inprinciple.WhatChristensenhashighlighted,hasbeenthatthereareprecise circumstancesthatindicatewheneachoneisworthtobepursued. Failingtoidentifythemmayleadtodeadends,fightingagainstwindmills,struggling withresources,findyourselfalonehalfthewayetc. TheRoadmaptoMarketwilltrytoguideyoutotherightpath,andhelpyou identifyallthesignsthatleadtosuccess.
Summary:
The Roadmap to Market aims at collecting all the information you need, to answer to3basicquestions: 1)IsthereaClientformyidea? 2)ifYes,canIminimizetheriskoffailureformynewproductorService? 3)ifNo,canImaximizethechancestofindtherightone? The First Question will help you recognize the signs to the right Road to market, avoiding deadend paths that have been proven (by others failure) to have the lowestchancesofsuccessifany. The Second one is aimed at collecting all the data needed for an NPV (Net Present Value)analysis:Demand,Share,Contribution MarginandRisklevel.Andisthe route you should take if you own the Clients and you just want to beat competition and leverage your competitive position to get the most out of your idea, with the lowest chancesoffailure. The last one is the most risky but also the most rewarding. Because, if you do not have a Client, you may then discover that your idea is worth to someone you never thoughtbefore,andhewasreallyjustwaitingtoittosolvehispressingproblems. TomakeyouswiminthisBlueOceanofopportunities,youneedtoaskyourselfhow you can discover the route to the Eldorado. And because noone have been there before,maximizingtheresultofeverytrialistherealjobthatbringsyouthere. Caveat: This book collects lessons of several leading Scholars in the Field of Game Theory ( e.g.: DixitNalebuff), Strategy (Porter, Christensen, KimMauborgne) and Marketing (Trout, Reeves, Bly, Stokes, Choun). I sacked wildly their ideas and tried to build a roadmapforinnovators,bridgingtheirtheorieswhereIsawpossiblejoints. Therefore this book is not intended for beginners. You should have a basic understandingofmarketingandbefamiliarofthecommonjargonsused.Inthisway you will multiply the effectiveness of this Roadmap, that organizes sound marketing models. Furthermore I not intended to give you a reading companion, but a working tool where to find rapidly hints about marketing innovation. You will not find many examples.Justbriefexplanationsofwhateachvoiceshouldmean.
TheRoadmaptoMarket: PART1.DOYOUHAVEACUSTOMER?
DoyouhaveaCustomer?
Wheneverafriendcomestometelling:Ihaveabusinessideathefirstquestion ImakehimisdoyouhaveaClient?.Buttherealwaytoputthequestionshould be.DoesanyCustomerownsyou?. BecauseisnotenoughthatyouhaveanideaofyourtargetClient.Youshouldhave bargainedwithhim.YourpotentialClientshouldhavebeenabletoexperienceyour service,oratleastexperienceyou.Recognizingyouasasolutionprovider.Someone whohastheabilitytosolvehispressingproblem,ortoallowhimtoachievehisgoal. Ifthisisthecase,probablyyouarenotalone.Youmoveintoatrajectorywithothers likeyou,readytoservethatclientatthebestoftheircapability. TheCustomerdictateshisneedsandrequisites,ifnotevenasksawelldefined performanceleveltoanattributeofyoursolution.
Ifyes,whichpartofthemarketareyouthinkingtoserve?
Incaseyouknowyourtargetcustomer,hecangiveclearindicationsaboutthelevel ofperformanceneeded.Butbecareful.Notalwayswhatheaskforiswhathereally isgoingtouse.ListeningtoomuchtoClientsrequestsmayenduppushingyour offertowardthehighendofthemarket.
ThisisaveryattractivesegmentofCustomers.Theyareneversatisfiedandask alwaysmore.Andareevenwillingtopaythisplus.Butthehighertheperformance level,thelessaretheClientstobesatisfied. ThedistributionoftheClientswithinthemarketmayresembleaGaussBellshape: Withfewatthelowandhighends,andamassconcentratingaroundthemedian performance.
Areyouunderperforming,orareyouoverperforming?
Takingasatargetthemediancustomer,iftheperformancesofferedbythemarket arebelowtheexpectation,allthecompetitorsarefightingforthetop.
Fightingforthetop:
Theystrivetosellabetterproductintoanestablishedmarket,andeachtime someonecomeupwithabettersolution,hecausestheimmediatecompetitors reaction. Theprizeatstakeishuge,becauseusuallythemassoftheclientsarestilltobe tackled,andtheopportunitiestosellgrowthebettertheproductis. FurthermoretheClientdoesnotfindabettersolutiononthemarket,soiswillingto payforthebest.Whatyoureallyarefightingforistomakeyourcustomerachievea betterresult,notreallytoassurethatyourproductreachabetterperformance. Inthisraceyoucannotstandstill.Youwillbeleftbehindfightingwithahardto differentiateproduct,andagainstcompetitorswithsimilarcoststructures. Youaregoingtolookforthoseideacapabletoimproveoratleastmaintainyour profitmargins,exploitingyourorganizationsprocesses,coststructureand competitiveadvantages.Alltheinventionsthatcannotdeliverimprovedprofit marginsrelativetothecurrentcoststructure,arediscarded.Becausethecost structureismostprobablyanheavyone.Thearchitectureneededtomanagethe
complexityandtheuncertaintyunderlyingtheresearchofabetterperformanceisa hugeandcostlyone.Ifyouintendtotakeparttotherace,betterbeequipped.
Integratedarchitecture:
What you need is an integrated architecture. An organization that is a platform capabletoachievenewlevelsintermsofPerformanceandReliabilityofyouroffer. Is a matter of concurrent efforts: you need the ability to develop the components of your offer simultaneously, solving the unknow and unpredictable interdependencies among them. It requires Experience, Talents, ability to manage risksandtime.Andthewillingtosustaintheseeffortsforlongperiods. An integrated architecture can be only proprietary. Is a unique enterprise that demand high Capital Expenditure to cover R&D costs, backup inventories, talented humanresources.Allthiscommandhugemarginsfromeachsale. The high capital expenditure and capital on operating costs ratio of an integrated architecture is the source of differentiation, and the first barrier to entry for new competitors into the offering trajectory. The second barrier to entry is given by the steepeconomyofscalethatisgeneratedbyanintegratedarchitecture. This is why trying to bring a new invention into an existing trajectory could not be a goodidea,unlessyoudohavetheintegratedarchitectureandtheClientstoserve. The race you would willing to participate would not be a race to succeed, but a race tonotfail.
Carefullyplanningnottofail:
Companiesthatplaythisgamehaveorganizations,processes,values,resources,that are committed to stay on track and sustain themselves. Their strategic efforts are dedicated to filter out inventions with lower chances to succeed, with expected marginsinsufficienttosustaintheircoststructure.Theyareoptimizedto extractthe most out of the existing customer base, and in doing so they fight to scale up the existing solution towards higher margins segment of customers: the high end of the market.Anewideathathasthepotentialwillneverbejustaddedtotheoffer.Most probably embedding it into the offering trajectory will require sound practices and experienceinmanagingtheinterdependencieswithallothercomponents. And the more hightech is the idea, e.g. if is an invention coming out of a research laboratory, the more resources are needed to govern it. No wonder that only large corporations can dare to bring on the market the most sophisticated scientific discoveries. They are the only one designed to manage the complexity and costs of suchachallenge. This race has a toll: the quest for higher margins may distract from understanding where the median market is. Listening to customers who ask for more (and promise
topayforit)mayendupsurpassingthelevelofperformancerequiredbythemass. For these Customers, the marginal increase in price that a Company can sustain for an improved product slowly approaches to zero. This suggests that the marginal utilitythatCustomersderivefromusingtheproductalsoisapproachingzero. Yourproductisactuallyoverperforming.
Areyouoverperforming?
HowyoucanrecognizeiftheofferisoverperformingrespectwhattheCustomeris willingtobuy?Afterall,Customersarethosewhoaskformoreinallthe questionnaires,survey,feedbacksandrequestsforquotationyoureceive. Atleastitseemsso.Ononeside,infact,thereisapsychologicalstiffnessofthe customerinconformingtothehighendluxurytastes,akindofirrationalwishful thinking,thatforacertainperiodmayhelpyourcustomerfeelbetter,whenasked abouthisneeds.Ontheothersideyourorganizationtendtoreportasfeedback, onlythosethatarealignedwithwhattheCompanywanttohear:moremargins.
Andmoremarginscanbefoundonlyinthehighendminorityofthemarket demand.Itsfeedbackisthereforetheonlyonethatsurvivethefilteringscreeningof theCompanyprobes:itsmiddlemanagement. AbetterlookmayshowthatMedianCustomersarestartingnotwillingtopayforthe marginalincrementinperformance.Suddenlytheyshifttheirinterestfrom performance,toReliability.Theyhaveenoughofwhatyourproductrangecan offer.Theywantthattheproductperformthesamewayaslongaspossible.Later on,whenalsothisrequirementbecomesmorethansatisfied,theirinterestshift again.ItmovestoConvenience:thepreferredproductbecomestheonethatis easiertogetanduse.Finallywhenalsothisfeaturebecomesagiven,thelast criteriumofchoiceamongcompetitiveofferingsremainsPrice.
Whenyouarestillontheperformancetrajectory,youmaystartnoticethatyour customersarestartingtobuytheentrylevelproductsofyourproductrange,orof themarketproductsrange.Allofthecompetitorsarestartedtobetreatedalike. Pricebecomesaninterestinggaugeofchoice. Isinthissituationthatathreatsmaterialize:
AreyouleavingroomtoaNewEntrant?
ThisisthequestionfromaCompetitorstandpoint.Youmayseethatnew competitorswithabetterpricingcanundermineyouroffer.Ifsuchanewplayeris abletocapturecustomersattention,andhasalowercoststructureheisgoingto benefitofhighmarginsuntilthelastcompetitorofthePerformancetrajectory,will stayinthemarket,sustainingthepricelevelstowardsthehighendofthemarket. ThecompetitorsinthePerformancetrajectory,areevenincentivatedintheirrush towardhighermargins,toleavethelowendsegment,movingtheiroffering portfoliotowardsthehighendcustomers.Insodoingtheirportfoliosmargintend toincreaseonaverage,somakingthisattractiontothetopevenfinanciallyjustified (atleastuntilsomeonestarttoseethathigherpricesbylowervolumesdonotcoop withcompanysgrowth).
IsthereaThreatoranOpportunity?
Iffromthecompetitorspack,overperformingcouldbeseenasathreat,fromthe pointofviewofsomeonewithagoodnewidea,thissituationismoreofan opportunity. Anobservationofthelowendcustomersmayleadtodiscovernotonlyawayto penetratethemarket,buteventoexpandit. Amongthelowendcustomerstherearesurelyuserswhoareperfectlyfinewiththe lowendproductsrange.Butacloselookmayshowthatamongthemthereare Clientswho,yesaresatisfiedwiththeminimumperformance,butinrealitytheyare usingotherfeaturesoftheproduct.Featuresthatareconsiderednotimportantor notconsideredatallbytherestoftheMarket.
Someoftheselowendcustomersneedhelptomaketheproductworkforthem. Theymayneedexpertconsultantswhohelpthemadjustandfittheproductfortheir need.Theylackofthecompetencesortheinfrastructure:tools,systems, information,tojustplugandplaytheproducttosolvetheirproblemorachievetheir goals.AllofthemarelookingforSimplicity.Otherstravelalongdistancejusttoget theproduct.Theyuseonly10%ofit,butthat10%isworthalongtrip.Ifsomeone couldbeabletoofferthesame,justalittlemoreConveniently,wouldbecome instantaneouslytheirpreferredsupplier.OtherCustomerswouldlovetogetthe productbuttheycanbarelyaffordthePrice.Sometimetheyjustbouncebackand goawayandmakewithoutit.Iftheyareluckytheytrytomakewithanemergency solution,somethingthatmakehalfofthework,butisbetterthannothing. Ifyourbrandnewideacanchangethecoststructureoftheoffering,reshufflingitto maketheproductmoresimpletoget,moreconvenient,andsellableatlowerprices: allofthesecustomersareyours.
CanmyideadisruptthePerformancestrajectorygame?
IfamongyourCustomersyoufindsomeonethatbehavesassaidbefore:lookingfor simplicity,convenienceandprice,orjustbouncingaway,chancearetherethata largercrowdofthesametypemaybeserved. Unfortunatelymanytimethepeoplethatspottheseopportunity,lackoffantasy. Ihaveseenpeoplespinningoffoneofthecompetitors,justtorephrasethesame offer,atlowerprice,orforjustsomeopportunistcustomer,butreallywithout bringinganythingnewonthemarket.Justgivingawaymargin,andtryingtomake theirwaycuttingfixedcosts(branding,service,R&D)fromtheoriginalcompetitor coststructure. Thisisquiteeasytoseehappeningfromtheservicesideoftheoriginalcompetitor.It isquiteeasytospotthehugemarginsthatthecompanyismakingwithitsservice business,stoleafewofthebestservicemendoublingtheirsalary,promiselower pricestosomefriendcustomeranddentingforawhilethesalesoftheoriginal company. Thismayworkinanupswingeconomy,wheretheserviceofferingcapacitymaybe notfullysatisfied.Butgenerallydoesnotlasttheshakeoutofadownturn,orofa companythathaditenoughofthosebitestoitsrevenuebase. Soifyouspottedtheopportunity,bettertomakeasanitycheckandverifyifthe moveisbackedupbyanewideacapabletobringthesamevalue,butwithanew typeofcoststructure. Thepeoplethatsucceedingrabbingtheopportunity,generallyhavespottedthat theproductsonthemarketarefarmorecomplexthanwhatisneededtodeliverthe performanceusedbytheCustomer.(remember:customerstendtoaskformore,
evenwheninrealityuselessthanwhatyouoffer)sotheyfindawaytopull togetherthekeycomponentsoftheproductontoamoresimplerandstandardized architecture.Amodularsystemwheretheinterfacesarefixed,andthecomponents canbepluggedintoachievethesufficientlevelofperformance. ThisperformancebecomesagivenfortheCustomer:whatheisreallylookingfor isspeed,responsiveness,convenienceandprice. Ifmyideaisbuiltonamodulararchitecture,andthisisaninventionthatcandeliver thelowendperformancelevelrequired:therearechancesthatmoreofthealmost customerswillswitchtothisnewsolution. Ifthisinventioncanachievealevelofperformancethatcansatisfythemedian customers,withafaster,simplerandcheapersolution.Theareverygoodchances thatthemajorityoftheCustomerswillmovetoyourinnovation. Disruptingtheoriginalmarket.
Ismyideabuiltonanew(modular)architecture?
Intheorythenewideaarchitecture,shouldnotnecessarilybemodular.Forsureis newdifferentrespecttheoneinusebythecompetitorsonthemarket.Butifitis anintegrated,complexone,thechancesthatthecoststructurewillallowalower pricearefew.Thechancesthatastartupnewentrant,canmanagethecomplexity, withouttheexperience,andcollectresourceswithoutacustomerbase,arefew. Sobeforetomove,letscheckiftheideaisbuiltona(new)modulararchitecture. Thekeypointhereisthatthecomponentsoftheproductshallbepluggedinthe supportingarchitecturewithouthavetotuneittotheothercomponents.Inother wordsthemodulararchitectureinterfacesshallnothaveunpredictable(notyet know)interdependencies.Inthiswayeachcomponentcanbedevelopedseparately aslongastheymeettheinterfacesspecifications.Thecomponentsspecifications limitthedegreeoffreedomofthewholeproduct,sotheytendtoleadtoasub optimizationofitsperformance.Butthisisnotaproblemaslongtheperformance achievableareenoughtosatisfythelowendcustomers(betterif:themedian Customer).Whatcountstomakethefinalproductperformance,isnothowthe componentsintegrate(coordinate),buthowwelleachofthemperforms. Thegreatadvantageisthattheperformanceofeachcomponentcanbeoptimized, withouthavingtoreinventtheentireproduct. Furthermorethemodulararchitectureallowsoutsourcing,leveraginginthiswaythe economyofscaleofthesupplier.Youcandosoifyourarchitecturemeetsthe criteriaofSpecificability(youknowwhatiscrucialforeachcomponent), verificability(youareabletospecifyitandtomeasureit),Predictability(you cansaythattherearenopoorlyunderstoodorunpredictableinterdependencies amongcomponents)
Isittherighttypeofmodulararchitecture?
Notallthemodulararchitecturesareequallyinteresting,fromabusinesspointof view.Ifitisaproprietarymodulararchitecturetheownerofit,willretainmostof themargin,attheexpensesofhiscomponentssuppliers. Hecanspecifythecomponentsinterfaces,inauniqueway.Hissupplierscanonly buildaproducttofitthem,withoutbeingcapabletoofferthesameproductto otherClients.TheOwneroftheproprietaryarchitecturewillmakethemoney,while thesupplierswillfightwithcompetitorstogivethebestpricepossible. (thisisthecaseforexampleofaGasturbinemanufacturer,thatcanspecifythe bladesofitsturbine,andsupplierscompetetosatisfythosespecswithouthaving thechancetoofferthesamebladetootherturbinesmanufacturers) Ifonthecontrary,themodulararchitectureisanindustrystandard,andother playerscanusethesame,theownerofthearchitecturebecomesalowcost integrator,andthesuppliermakesthemoney.(seewhathappenwithindustry packagersofsimpleindustrialskids) Inbothcase,themodulararchitectureallowslowercostsstructures(R&D, Inventory,HR)andpermitstosellatlowerpricestoalargerpoolofcustomers. Thedifferenceiswherethemoneygoes.
Whoisthecustomerofanewmodulararchitecture?
Ifyourideahaspassedthetestforarchitecture,isworthtorecapthebattleyouare goingtofight,beforetoproceed,andbesureyouunderstandwhoarethe customersyouarelookingfor.
Youaregoingtoofferyourinnovation,basedonanewkindofcoststructureand architecture,toanexistingcustomerbase.Youareanewentrantonanexisting performancetrajectory.Youcompeteforcustomersthatarealreadyconsuminga product,andthelargemajorityofthemarewelloverservedbytheexistingoffer. Yourentrycustomersarethelowendsegmentofthemarket.Arethosethatarethe mostoverserved,theleastprofitable,andthereforelesswantedbytheincumbent competition.Youaregoingtoproposetothosecustomersalowercostsolution. YourstrategyleveragesamodulararchitecturethatgrantyouaCostAdvantage. Thisadvantageisthereonlytillthesamecustomersarealsoservedbythe incumbentcompetition.Aslongasthelastofthecompetitorsowningtheoriginal architectureabandonethefight:yourcompetitiveadvantagewillfadeaway. Youwillfindyourselffightingagainstequallyequipped(remember:youmost probablyhaveanindustrystandardmodulararchitecture)competitorsatough pricewar.Sobereadytoenjoythemarginsuntilthelastincumbentcompetitoris stillthere. Youronlywaytoenjoymarginsistoprecedetheabandonmentofthelast incumbentcompetitor,invadinghisspace.Yournexttargetisthereforehighertire customers.Andtodosoyoumustbereadytoextendyourmodulararchitecture stretchingitsperformanceuntilyousatisfythosehighertirecustomers. Todosoyoucanonlycountonyoursupplier.Youmustbereadytoincorporate whateveradvancementtheycanofferfortheircomponent,thatcanallowto increaseyoursystemperformance.Thearchitectureinfactisagiven,andyoucan notcountonittoincreasetheperformanceorgaincompetitiveness. Speedinadoptingthenewcomponentsisofmaximumimportance:inordertobe thefirsttoreachthenewmarketsegment,whiletheincumbentsretreatfromit.
Areyougivingawayyourbusinesstoyoursuppliers?
Theothersideofthismechanismisthattheonlywaytogainsomethingintermsof architectureoptimizationistooutsourcetothesuppliersareasalwaysmorelargeof yourplatform.Inthiswaythesuppliercanintegratedtheareaandofferanenlarged subsystem,optimizednotonlyintermsofprice,butalsointermsofperformance. Andyouhaveverygoodreasontodothis:yourcoststructurewillbenefit,cause architecturesbasecostsgetsqueezed. Thenaturalpathisthatwhileyouaretacklingthehighertirecustomersservedby interdependentarchitectureplayers,simultaneouslyyougiveawayalwayslarger chunksofyourarchitecturetosuppliers.Theyexpandthescopeoftheir (interdependent)architecturetofulfillalltherequirementsofallthepossible subsystemsofyourproduct.Theywillfinallyendupofferingtoyourclienta solutionthatisfullycommoditized:isaffordable,undifferentiated,overperforming, reliableandconvenient.
Atthatpointtheonlydifferentiationleft,goesintothedistributingchannel:and amongthem:theonlycapabletoprovideanythinganytimewillprevail. Thisiswhathappenedwiththesportclothsindustry:wherethetailormade solution,arenowsupersededbylargeretailchain,offeringproductsbrandedwith thechannelname(Decathlon,tomakeanexample). Thegamethereforeneverends,isatokenpassinghands:theinterdependent architectureispulledtowardsthehighendniches,untilthemarketisdisintegrated andsupersededbyamodulararchitecturethatisthensupersededbya commoditizedintegratedarchitecturewithadifferentiatingdistribution channel...etc.
Canyouavoidit?Notreally.Whatyoucando,ifyouareasavvycompetitorusingan interdependentarchitecture,istorecognizetheemergenceofamodular architecture,andanticipatethemovesofthenewentrant,destructuringyouroffer intothekeycomponents,standardizingtheirinterfacesandsellingthemtothenew entrant,thatinthiswayispushedintoaindustrystandardarchitecture,beforethat hefullydevelopitsown,andreducehimtothestatusofalowcostpackager. Youwillretainthetechnologyofthekeycomponents,andwithit,thelargestshare ofmarginthenewvaluechaingenerates.
Confess:youdonothaveaCustomer,dontyou?
IfyouarenotsurewhoyourClientcanbe,probablyyouareoneofthoseguythat afterbeingimmersedintoatechnologytrajectoryforawhile,yousawawaytofind thesamethingbutmuchmoresimply. Youprobablybelongstotheengineering,marketingorservicedepartmentofoneof theleadingplayers.Somethingtriggedyourattentionandyoupulledtogetherpieces ofthesolutionassemblingoutoftheshelfcomponentsonamodulararchitecture andobtainingwhatitlookslikeanotenoughperformingabort.Butitswaymore cheap,fasttobuild,easytopurchase.Andthesuppliersbelongstoatotallydifferent valuechain,generallyspeaking,muchlessdemandingandbranded. Theabort,sorry:idea,thatyoupulledtogetherdoesnotworkfortheusual customersbelongingtoyourperformancetrajectory.Atmaximumcanalmostserve thelowestendofyourcustomerssegments. Yourbosshasridiculizedtheidea.Customersfeedbackisliketohavepresented thematoy.Yoursolutiondoesnotshowtohavethemarginrequiredtobeableto contributetotheexistingproductportfolio. Butithasaveryimportantattribute:itworks.Furthermoreitssimple.Anyonecan useit,itsmuchcheaper,becausetherearenotinhousebuiltpreciouscomponents: everythingwasavailableonthemarket. IfyouonlyhadaClient!
Whothehellmaywantit?
Thisistheproblemwithgoodideasthatarecheaperandsimpler,butdonot performenough.Yourusualcustomersdonotwantit,andyoudonotknowwho may.Yourcolleague,instead,theonethathasproposedthebiginvestmentneeded toimproveofthe1%theperformanceoftheexistingproductline,passedthetest. Hisidea,wasrisky,difficulttorealize,butwasinlinewithwhatcustomerswere demanding.AndwhatCustomeraskfor:getprecedence. Hisproblemwastomakealltheplantomitigatetheriskoffailure.Whatthe companyhasdoneistocarefullycheck,andeliminateanyriskofpromisingto customerssomethingthecompanyisnotabletodeliver. Yourideaisdifferent.Isthere.Itworks.JustneedtofindaCustomer. Theproblemistheopposite:isnotamatterofreducingthechanceoffailure.You needtomaximizetheopportunitiestobumpintotherightcustomer. Andonethingissure:isnotthecustomerthatyoualreadyknow. Probablyissomeonethatisstrivingtodoajob,wherethetypeofsolutionyou proposemayhelpalot.Buttodayisnotoffered.Thesepotentialcustomersprobably usesomethingdifferent,asuboptimalproduct,thatperformsunsatisfactorily. Onthoserespects,yourideawouldbeasubstituteproduct. Probablyyourproductwouldenablethosepotential(nonyetconsuming) Customers,thatlackedthemoney,theskillsorcouldnoteasilyreachthesolution.
Whoarethosecustomersandhowmany,nobodyknows.Theonlywaytofindthem istodesignasetofexperimentscapabletoidentifythemandthebestwaytoserve them. Andbecausetheyarenotknow,youdonotevenknowthroughwhichchannelyou canreachthem.Youknowonlythat,becausetheyareaskingsomethingcheaper, easierandfaster,speedandresponsivenesswillbeakeyfeatureoftheright channel. Andcannotbethesamechannelusedbyyourcompanysforitsproducts. Becauseyoucannotofferthesameshareofmarginstothem.Youneedtofinda channeltomarketthatcanbehappywithyourlowermargins:forwhichyour productmayofferhighermarginsrespecttheirexistingportfolio.Someonethatwill beenthusiasttoaddyourproducttotheiroffering. Therearegoodnewsforyou,however:first:thereisamethodologytohelpyoufind therightcustomer.IscalledDiscoveryplanningandissummarizedinthe3dtpart ofthisbook.Second:youareasubstituteproduct:thismeansthatyoucompete againstdoingnothingandlivewithitor,atworst,againstatemporary,sub optimalsolution.Third:youaregoingtouseavaluenetworkthatnobodyisusing now.Youarethefirst,theonlyonethathasenvisagedthemodulararchitecturethat cansolvetheproblem,andevenifyouaregoingtostealfewcustomersfromthe originalmarket,thecompetitionwillnotevennoticeit,becausetheyaretheone withlowestmargins(forthem). YoujustneedaplantodiscovertherightpathtoCustomers,andlearningbydoing, adjustingyourwayuptohighervolumesandbetterprofits,intoanewBlueOcean ofopportunities.
TheRoadmaptoMarket: PART2.HOWMANYCHANCESTHISINVENTIONHAS?
Howmanychancesthisinventionhas?
The decision three in part.1, should have routed you to one of the 2 possible course ofactionswhendealingwithinnovation: Minimizerisks. Maximizeopportunities. These2seemquiteparallelpaths,applicabletoanykindofnewventure.ButItsnot so.Thesetofcircumstancesdescribedabovesolicittogofromideatomoney,using oneofthesetwomindsets,asanalternativetotheotherone. Part.2isdedicatedtothefirsttypeofpath:theonetobepursuedwitharisk avoidancemindset. Thismeansthatmostprobablyyouareinawellidentifiabletechnologytrajectory thattakesthemarketsneedsasagivenandissupportedbyawelldefinedvalue networkofconcurrentsuppliers.Thatalltheinnovationsfunneledintothis trajectoryaretargetedatawellidentifiedgroupofCustomers.thatthesecustomers (oratleastasizableandinterestingpartofthem)arestilllookingforaperformance levelthatnoneofthecompetitorscanactuallymatch.Thatthenextlevelof performancewillbeachievedinapriceperperformancesunitlowerthanthepast levelofperformancereachedandthatyouownthearchitectureofavaluechain platformthatstillrequiresagreatdealofintegrationinordertosolvethe interdependentproblemsthatarousesimultaneouslywhenbringingtogetherthe elementofthesolutionyouwanttooffertotheClient. Allthissetofcircumstancesfavortheestablishedorganization.Anorganization withthecapability,abilityandresourcestoplaythegamewiththecompetition.Its scopeistoextractthemostoutoftheexistingcustomerbaseandmaximizingprofits indoingso.Itsproblembecomestogenerate,select,evaluate,prioritizeandlaunch theinventionthatwillbeatthecompetitionandconquermarketshare. Thefollowingpagestakeforgrantedthatthisorganizationhasbeenabletogenerate therightideaforanewproductorservice,andbringyouthroughthequestionsyou shouldanswerinordertobeabletoevaluatethepotentialofyourideaandassure youdesignamarketingplanthatwillminimizetheriskoffailureinlauchingitonthe market.
1/4Isthesolutionappealing?
The nicest part of having a new great idea is that it is selfevident that it will be sold inmillionsandCustomerswillfighttograbitfromourhands. Unfortunately our bank will not see it in the same way. So, unless you are ready to betyourownmoney,wearealwaysaskedtoprovethatCustomerwillpayforit. AndthiswillhappenonlyifourideacreatesvaluefortheCustomer. Better: if creates an affordable value, and if this value is greater than the one of equallydemandingalternatives. This step of the Roadmap to Market qualifies and quantifies the value delivered to the Customer and tries to understand how much value the Customer will give in returnofthesolution. The difference between Value Generated for the Customer and Value Spent by the Customer(i.e.thePricepaid+theCostssustainedtobeabletousethesolution)is calledtheAppealofthesolution. Wearegoingtoinvestigatethesethreecomponents: Valuegenerated,PricepaidandincurredCosts.
AHowmuchvalueourideacreatestotheCustomer?
Understanding the value that the Customer gives to our idea starts with understanding who our customer is and which is the situation or the process he is involvedin. The Customer is in that situation because he wants to achieve a certain goal. If the goal is beyond his reach, this is a problem that needs a (our) solution. Any solution caries some characteristic (attribute) that has specific ability (features) that make possible to make a further step (get a benefit) towards the ultimate goal of the Customer.
ACustomermaybein2situations:orithasaGOAL,orithasaPROBLEM
1)heknowswherehewanttobeinthefuture,butdonotknowhowtogetthere 2) he has envisaged how to get there and is looking to the best way to fill a gap betweenwhereheisnowandwherehewantstobe. In the first case he is actively looking to pursue a GOAL, and need a hand to understandwhichisthebestwaytogothere. In the second case he fully understand how to go there, he knows the PROBLEM he has to solve and he just miss the right solution: piece of equipment, service or information. The second case (the PROBLEM case) is a bit tricky for a supplier, because Customer will tend to propose his vision of the solution needed. But in reality he most often
doesnothavethecompetencestodefineit. This is way collecting Voice of the Customer inputs about what the attributes he expects from the solution can lead to disaster. Even collecting his inputs about the features is not enough, cause he may describe just part of the problem (the interfaceswherethesolutionhastoplugin),whatwereallyneediswhatbenefitshe wantstoachieve:howhewillmeasurehowwellhisgoalhasbeenreached. What we really need to understand is what the Customers wants to achieve: his GOAL: which is the job that he has to be done, and how, by which variables, he measureshowwellthejobisgettingdone. Letsstartfromtheprotagonist.
WhoistheCustomer?:FromCustomersneedstoCustomersGoals
A Customer is someone that has a Goal, someone that aspire to achieve something. But he has a gap that separates him from his Goal. This gap is his need. And we as suppliersaretheonethathavethesolutiontoclearoutthatgap. To make an example think this situation: image to be an owner of a Restaurant. You getacallfromamanaskingforatablefortwo.Youmayimmediatelythinktoyour menu prices and which of your table can fit them. You are going to solve his problem,offeringasolutionforaprice.OryoucanthinkwhatistheultimateGoalof yourCustomer.Thinkingwhatheisreallysaying:Ineedacomfortableplace,abit of romance, an impeccable service, a soft music. In this case you may think to the Value you can offer, and make sure you are going to great him by name at the entrance, be attentive to the partner needs, and win over a couple for the rest of theirlifesanniversaries. YouunderstoodtheultimategoalofyourClient:aDreamfortwo.
WhatCustomerdreamsof
Customers are those that have a Goal and a problem. Suppliers are those that have solutions.Andyes:thereisabitofchickenandeggsgamehere:youneedtoknow who is the customer if you want to address his problems. But at the same time the problemandwhyCustomerneedtosolveit,arethestartingpointtoclearlyidentify anddescribetheCustomer. In B2C this may require a customer segmentation, or grouping Customers in 34 categories that can be univocally described, considering what is the ultimate goal eachindividualClientwantstoachieveandaddressingtogethertheoneswithcloser desires. In B2B, understanding who is the Customer may require to search the actors of the purchasing process. Each person involved into this process has its importance to influencethefinaldecision.Therolesintheprocessare:Initiator(whoidentifiesthe needs) Specificator (who defines what is needed) Decision maker (the one that will get the benefit) the Buyer (the one who tries to cut down your prices ) the User(theonethatwillutilizethesolution). IamhappyonlyafterIhavebeenabletolistthecustomers(ordescribethem,based on some characteristics) and group together those that have a common reason to wanttheirproblemsolved.
Wheredoesthesolutionfit?Whatproblemitsolves?
Who is the Customer is now clear. And we have even understood his ultimate goal. Thingsdonotrunsmoothlyforhim.Butwecanhelp.Atleastwethinkso.
Tobesure,Itakeacloserlookandtrytoclearlyidentifytheutilizationsituationthat makes our idea a great fit. You can always get surprises if you touch by hand instead making a guess. This is true for B2C (your pumpkin could end up in a risotto or look fabulousasaHalloweenlamp);it hasaspecial meaning inB2B,where mostof your productandservicesareinjectedintheflowofacustomersprocessandCompanies tendtojealouslykeepsecretthewaytheyreallywork. In B2C: understanding the Customer problem; what solutions did they look at and ultimately reject; why did they choose our product as the solution; how did they install our product or implement our solution; how is the customer using our productrightnowandwhatresultshavetheyattainedwithitisthepaththatmake youunderstandwhereyourproductfitsandwhy. In B2B: Understanding the customer process where the solution will be used and mappingoutitslogicalsteps,isimportanttocorrectlyunderstandtheultimategoals of the Customer. Knowing its goals makes you understand and prioritize the benefit that your solution delivers and help quantify the value of the benefits sought by the Customer. IfweareabletounderstandwhatjobtheCustomeristryingtoaccomplish,then we cangroup(segment)ourcustomerbythosetryingtodoaparticularkindofjob. WeshouldbeabletodescribethecircumstancesinwhichtheCustomeris,whenhis necessityappears,anddefinethecausaltythatmadethephenomenonoccur.Inthis wayweshouldbeabletopredictwhenandwhyCustomermayrequireourhelp. If you fail to be able to describe this causalty, your segmentation will end on being based on attributes: you are not going to describe why a customer has a need but only how he needs. So your forecasts will be based only on the past, and not will be abletobuildamodelofthefuture. At your discharge, is the fact that ther are at least 4 mighty forces that drive you to segment your customers by the attributes of your product, instead by the reason behindtheirneed:
4reasonswhyyousegmentinthewrongway:
1) Your fear that focusing your product on a customer need, you will loose the opportunity to sell to other customers, with different needs. In reality is the contrary:afocusedproductstealscustomersfromundifferentiatedproducts. 2) You (or your Boss) ask for market size (for which the IT has data ) instead of whatcustomersneedstoaccomplish(forwhichtheITdonthavedata) 3)Yourretailchannelstructureisattributebased:theyaskyoufor300strawberry milkshakestoputontheirshelf,andnotsendmemilkshakeforkidsparties 4)alltheadvertisingisCustomerbased:Young,old,females,men,andnotonthe circumstancesonwhichyouhaveajobtobedonebased:whenyouarepreparinga marathon,whenyouarecleaningahome
Asnapshotonprocessmapping:
You may find several good books about process mapping. But here are my recommendations: 1) Start with the end: i.e. any process transforms something into a product or service that is delivered to someone. Find that someone, this is the starting pointofyourprocessmap. 2) Map only the logical steps, not the activities. The distinction is that the logical steps define the change in status of the resources processed. Do not bother about how you make the change of status happen. i.e: if you have to go to Paris and You are in Rome, you change your status independently if you go to Parisbyfeet,car,trainorairplane. 3) Track the deliverables at the end of each step: not the logical step itself. Deliverables at the end of a step: have changed status. Tracking the deliverablesstatus,youtrackthelogicalstepcompletion. (Moreonprocessmappingonmysixsigmashortcourseforgreenbelts,askforit)
Whichsolutiondowedeliver,andhow?(S.O.R.C.)
Thisquestionmayseemsoffensive.Afterall,ourfantasticideaissosimple! But try to explain it to a Customer. I always need to develop very convincing arguments. This is the reason why I start describing the idea immerging it in its utilizationsituation:itbecomeseasier. Istartwithitsattributes(e.ghereisalamp),thenIdescribeitsfeatures(e.g.that gives light) and ultimately I identify the benefits achieved through them (e.g. so Youcansee). You may want to qualify the benefits delivered by each attribute. Doing so, I occasionally discover gaps versus the expected results, or opportunities to expand the product from its physical attributes to its service content. Sometime You can evenexpandittofunctionasaplatformforfurthersolutions. Agoodwaytoscrutinizeandproperlydescribeour ideaisalwaystocompareitwith what others provide to solve the same problem. A look to what the Customer has used in the past, is using now, or will going to use in the foreseeable future will help you refine what our solution actually delivers, how is really made, and if its supportedbyotherproducts,services,orsystemsasothersare. Sometime the competitive solutions go beyond solving the problem, and associate to themselves ideas, feelings, beliefs, and myths that are even stronger than the solutionitselfinreassuringthecustomerofhavingreachedhisultimategoal. So, going from attributes to features till benefits give a great opportunity to understand the ultimate goal of the customer. This will help you later on, when lookingtomakeyourideamemorabletohim. Howmuchvalueoursolutiondelivers?(inB2B)
Wemustbehonesthere.Wedonotknowhowmuchourideaisworth. Even when I think I know, I discover later on that Customer has totally different opinions. And not always its a bad surprise. More often than not, Customers are readytopayhigherpricesforouridea,thentheonewearejusthappytoask. From bad and good lessons, I learned to check with him directlyafter a bit of homework. Just not to spoil our price from the beginning. After all there are very fewMecenateoutthere,readytorecognizefullythevalueofourwork. There are countless ways that aim at identifying and measuring how much value Customer gives to our idea. And a lot is complicated by the definition of Value: classic marketing manuals can refine the meaning up to search for ultimate customer beliefs or stay a bit more comfortable in searching for the immediate benefitsandattributesthataspecificofferdelivers. Whateverthewayselected,Iproceedintwosteps:FirstIqualifythevalue,looking athowitisgenerated,thenIquantifythevalueforeachcategoryIveidentified. WhendealingwithB2C,toqualifyandquantifythevalueofanidea,Isawpeoplego very plain and just trust their personal feeling, as well as companies go for complicatedstatisticalanalysisasConjointandDesignofExperiment. Is a tough argument where I ventured only seldom. What I can say is that the American Marketers have invented the pilot testing of new ideas. And I think that is agoodmove. WhenintheB2Barena,thingsgetsimpler. Therearebasically4typesofvaluethatourideacandeliver:S.O.R.C. 1) GeneratemoreSales 2) ReduceOperatingcosts(financialcostsincluded) 3) Reduce the overall Risks associated to the business of Your Customers (startingwiththeriskofusinganunknownsupplier) 4) ReduceCapitalCosts(Capex) Each of this Values Components can be investigated, referring to the Customer processoursolutionisintendedtoimpact:
ThemoreSALESValuescomponent.
OursolutioncanhelpCustomersalesinseveralways.Butwecanclustertheminto2 bigcategories: 1) TheonesthatincreasetheNumberofgoodssoldbyCustomer.
2) TheonesthatincreasethePriceofthegoodssoldbyCustomer. For example: You may propose an office automation tool that dramatically reduce the average lead time of your customer goods. This means more pieces sold per period. Or you may introduce a software solution that dramatically enhance the satisfaction ofYourfinalcustomer,leadingtocommandbetterprices. HereisalistofplaceswheretolookformoresalesValuecomponent. performance timetofirstproduction/delivery availability reliability offdesignconditions performancedegradation services&emergencies
ThelessOPEXValuescomponent:
Again, by opening the customer balance sheet and income statement we may find clear suggestions to understand how much our idea is worth. When I look at this ValuecomponentIgivealargemeaningtoOperatingCosts:allthecoststhatchange as the Customer sales change. Check out how much manhours, direct materials, supervisorymanhours,consumablesetcoursolutioncansave. Herearesomeexample: directmaterials manhours/headcount training/professionalism/headquality fuelcosts consumablecosts underpinningcosts tax ecocosts stockslevels/inventory
ThelessRISKSValuesComponent.
This voice is a bit trickier to describe. But this is the meaning: whatever makes your customers business more risky, automatically reduces the value of the business itself. To make an example: our customer may be able to sell 100 pieces, but if his customers pay only 80% of the times, our customer sales are worth only 80 times (if
not less) the average price. Therefore Customer should appreciate any solution that reduces his business risk and makes that probable 100% a more likely realized figure. IsayshouldbecauseRiskshouldnotonlybethere,butshallevenberecognizedby the Customer. It is not always so: people have different level of risk understanding, andrisktolerance. AssumedourCustomerfeelsDamoclespain,ifourideahelpsreduceCustomerrisks, itcreatesvaluetohim. Asanexample:justthinktothelowerinsurancefeeaCustomercanpay,thanks toa newsecuritysystem. Here You may want to go creative. And Probably you will make your customer discoverrisksthathewasunderlooking. Herearesomeexample: fulltestedsupply reachability(servicelevel) KnowHowcosts returnsintechnology personalrelationship brandleveragingvstopmanagement integrity evaluationrisks financialrisks politicalimpacts
ThelessCAPEXValuescomponent
Few pages ago we have defined the situation where the Customer is in and the processes the Customer is using to achieve his goals. Now we go a level down and lookattheinfrastructuretheCustomerhascreatedtomakehisprocessdeliver. Some time a quick look at Customer Balance Sheet can give an idea of the status of his infrastructure: how much has it been used so far (depreciation), what recent investments have been done, which is the biggest infrastructure piece (where his attentionisfocused)andalike. Thenwecanthinkatdifferentwaysourideacanreducethoseinvestmentscosts. Herearesomeexample: solutionprice(thisiseasy) sparepartsprice duration/depreciation
partscommonality Terms&Conditioncosts warrantiescosts installationcosts plantinducedcosts(asimpleexample:theparkingfortheemployees) financialaids taxesandincentives upgradesandoptionscapabilities customization/standardization bundlebuy ecocompliancecosts expeditingcosts/QualityControl
Summary:
Thinkingwhere,(amongSALES,CAPEX,OPEXandRISKabatement),ourideacanhave animpact,makeseasierqualifyandquantifythevalueithasfortheCustomer. IkeeptrackofanynewtypeofimpactsIfindaslongasIidentifythem,causeinB2B the ultimate goal remains to make money and this attitude leads to common approachesindifferentindustries. And sometime cross linking this categories can help identify some unexpected value andnewwaystoconvincecustomertobuy.
HowmuchdoesCustomerneedsit?
At this point of our Roadmap we know who our Customer is, when and why he may be interested in our idea. We have articulated our idea and associated a potential valueitcandelivertoourCustomer. NeverthelessourCustomerdonotshowanysignofinterest. TheValuethatourCustomerplaceintoasolutiontoproblemdoesnotdependonly ontheamountofvalueorthesizeofthebenefititcandeliver. Itdependsalsoontheurgency,theperceivedrisk,andtheavailabilityofbudget. Forthislastreasononly,manyprefertomakebusinesswithrichpeople. To gauge the interest of a potential Customer to my idea, I find useful to use KANOs analysis,evenifKanoitself,probablywouldnotusehismodelthisway KANOsmodelclustersthefeelingtowardasolutionin4baskets: Solutionsthatcustomerfeelsas: INDIFFERENT:somethingthatdonotreallychangehislife. MUSTHAVE:issomethingcritical,andmustbeperformedinawayoranother. NICETOHAVE:somethingthatisniceandcool,butCustomercanlivewithoutit.
THE MORE THE BETTER: something that is of value and Customer will get great benefitrightnow. You may have the perfect solution, but Customer may feel solve his problem not necessary, not urgent, too risky to tackle or the problem improbable to happen, or simplynothavingthebudgettosolveit. Another way to understand the Customer purchasing intention is to test them: collecting his comments, asking him directly, looking for what are the tendencies, rumors,andfeelingsinhiscommunity. Most of the time the problem is already been tackled by the Customer. Trying to understand what solutions he used in the past, what alternative routes he took to solve the problem, what level of benefit he got till now, (assuming he had any) and the main difficulties encountered so far, are good information to understand the urgencyandtheBudgetavailability. Furthermore, listening to the Voice of the Customer (VOC) allows me to test proof much of the assumptions made and discover unexpected feedbacks and considerations.
Whatadvantagesgivesoursolutionvsotherssolutions?
NowwecancompareoursolutiontotheoneoftheCompetition. YoucangotoMichaelPorterbooksforanoverviewoftheproblem. WhatItendtodoistolookatcompetitioninrelativeterms.Ilookforgaps. Lookingatwhattheideashaveincommon,itisnotacustomersselectioncriteria. The first gap is versus the do Nothing competitor. What is the real damage of not tackling the problem? If we are so lucky that Customer has not tried anything till now, he probably is not aware of the problem often not a good sign of appreciationforthesolution. ThenIcomparewhatCustomerisdoingnowandwhathasdoneinthepast. Iespeciallytrytounderstandwhyheisunsatisfiedoftheresultsobtainedsofar. FinallyitcomesthetimeforRealCompetition:alternativeandcompetitivesolutions. Alternative solutions are more subtle: think at the difference between a vaccine and a daily cure for allergy symptoms. The two are competing, but they solve the problemindifferentways. Competitivesolutionsarethosethatcanreplaceyoursrightnow.
Porterdescribestwotypesofdifferenceincompetitivenessorrelativevalue: The first refers to those attributes that impact the Effectiveness of our solution. Our ideas carry some attribute that work better and the customer will get greater Benefits(creatingmoreValuefortheCustomer). The second refers to the Efficiency of the solution: how much value our idea takes out from Customers pockets (destroying less Customers Value), while solving the problem in a decent way. Porter refers to price competitiveness. We are going to investigateitinthesecondchapterofthissection.
Summary:
CustomerwillcomparetwosolutionsbasedonthenetValuehewillreceive. ValuegeneratedValuedestroyed.I.e.EffectivenessvsEfficiency When comparing the differences between competing solutions I tend to keep note only of the Delta: what is in one that is not in another. This forces to focus on tangibledifferences.
BWhatPricewillbepaid?
The second component of attractiveness is Price. The more we take from customer pockets, the less value we leave in his pocket. Thegreatest the value/price ratio, the highest the probability that Your product will be sold. As a first move we can check out this ratio roughly. A ratio of 25 ( i.e. customer will gain 25 times the price spent) is a good minimum threshold. Consider that when we will talk about the 3rd attractiveness component (Costs), this ratio will be reduced by the costs Customer willincurtouseoursolution.
Howtosetprices? Strategically:
Before to think to the price of a new product, I look at it from a distance. I take a moment to think to the segment, cluster or industry where my idea will be proposed. Is it wealth? Is it trendy? Is my Company brand positioned as premium or luxury? Or is it a follower? And what have been the trends of prices? Are being squeezedbythemarket,orhighdemandcancommandhighprices?Abirdeyepoint of view and a comparison with what happens in other adjacent segments or industriescanhelpalottosetadirectioninyourPricesetting.
Competitively:
The next step is to look up to the competition. A new solution and its new price has to confront with other solutions, the simple fact of add a solution/price to the Customerschoiceslisthasanimpactoneachpriceonthesamelist.
Proposing on the market the wrong price can destroy a niche or an industry, initiating an iteration of competitive moves that become easily out of control of the priceowners. Its the price/demand elasticity. And the easiest way to summarize it is: beware of crowdedmarkets.Everycompanyshouldtendtobethemonopolist.
Transactionally:
FinallyIstartthinkingaboutthenegotiationprocessthatmyproductwillgothrough when put on the market (even if You set a fixed price, actually you have pre negotiated it). The steps that the negotiation process will be made of, will actually setthefinalcashyouwillget.Thisistherealpriceyouhavetoconfrontto.
Howmuch?
HowmuchisdefinitivelytheQuestion:Priceisthemarketingvariable. Is one of the few things you can always change abruptly to achieve your sales goals. Price is your resource when you need to counteract or deploy some competitive strategy.Itseventheretoprotectsomesalesmanfrompoorsalesresults. TosetPriceforanewideaImakereferencetothree(andahalf)waystodoit. As a first option, I check if I can define a price based on the benefit (Value) my Customer will achieve using my idea (value pricing). Then I know I have to take competition into the game, so I check out how they price (market pricing). As a last resource I do the simple thing, and add a profit to my solution costs: probably not thebestwaytodoitbutatleastasafeway(costpluspricing). Sometime I appeal to an ultimate resource: an half way to set a reference price: I ask Customer to set the price. Not my preferred choice but, with a walk away option embedded in the negotiation process, You can even have some very nice surprise.
Valuepricing
If you made all the Roadmap steps till now You should already have the elements to gauge the value that your solution brings to the Customer. You can now check out the industry or competitive multiples to set the Price. You can go to similar solution offeredinotherindustryandcheckouttheratiosused.Thisisgoodpracticeanyhow, because Customer buys other stuff too. And those prices help him to build his expectedprice.
Marketpricing
As said, most of the times we are not alone on the market. Customer can have several solutions at his reach and this forces to think in terms of Price Parity: i.e. try tosetapriceinlinewiththecompetition. Itsoundsabitcollusive,butitsastartingpoint. AssumingIamabletofigureoutaPricebenchmarkamongcompetingsolutions,the nextstepistochooseamong:astrictpriceparity;sellmyideaatapremiumpriceor atdiscountedprice. In a market, often one of the competitors is the price maker. The price decision has to be taken taking his goals into account. If, for example, I want to try a discounted pricetactictoenterthemarket,Igiveclearsignstothecompetitionthatthispriceis an interim price, to try avoiding price wars. Customer get the message too, and mustbeclearthatthepriceisnotcarvedinstone,butanencouragementtoatrial.
Costpricing
Placing a markup above the purchasing cost is a common practice for distributors. Thelogicis:first:coverthecosts,oryougiveawaywealthforfree. For this reason define a price requires to have a clear idea of the cost incurred in creating the product and bring it to market. This is not an easy task, especially when huge capital costs and investments are involved and then goods are sold at small price. A trick I use in preliminary analysis, when all the costs are not clear, is to refer tothecostofsimilargoods,forwhichIhavebetterdata.Canbethepreviousrelease of the product or something that I can buy on the market and for which I have companyinformationthatcanestimateContributionMargin. Sometime selling at breakeven prices is necessary to step beyond a demand crisis, but on the long run working for free becomes challenged by moving in other business activities. So I prefer not to set a breakeven price, without considering the lifetime value of the business initiative. In other words: is not the break even of the last quarter, but the total life cycle break even of the business venture we are starting.
Transactionalpricing
Till here: theory. But sometime it happens I have to start a negotiation without having a price in mind. We always do business in a hurry and we are not always ready. In this case we may want to test proof our assumptions asking the customer tohelpussettingtheproductprice. Not my preferred strategy, but this way to set price can give nice surprises (when Customer values our idea much more than what we suppose and would be very interesting to know why) or strong delusions (when customer forward a price belowourexpectationagain:takeabetterlook).
ThisprocedureofaskingtheCustomeraPrice,canbeveryannoyingiftheCustomer has a strong competitive negotiation style. So would it would be preferably used withcustomerthatdemonstrateacooperativeattitude. Customers negotiation style shall be taken into account in price setting, because a pricecanbedefinedforeachtransaction.Thenegotiationphaseofthebusinesscan greatly affect the cash ultimately will reach our pockets. There is a decay from List price, Invoice price and Pocket price. Setting the price should mean set the tolerancesofeachphaseofthenegotiationprocess,causeeverypercentagepointof pricegained,goesdirectlyintoourProfit.
Howdoesthepricechange?
Price dont change just during negotiations, to get the order signed. It has to be modifiedtoextolthemost,indifferentsituations. NotallCustomersvalueourideainthesameway.Ifweareabletopackagetheidea differently for each Customer segment, we can try to command different prices for thesamesolution. If we are going to use different distribution channels to reach the customers, each channel may be served with a different price that takes into account the shopping convenience. Price of a product changes during product lifetime: for example high tech products have to harvest the most at the beginning of the business life, to assure fast investment recovery when competition cant copy it. While at the end of their business life cycle, price could be reduced to make it affordable to anybody. (Attentionnottocannibalizeyournextidea,tough) Pricechangesdependingonseason:saleperiods,specialeventsandanniversaries. I give a thought since the beginning to the effects of promotional or competitive tactics like discounts, trials, refund policies, customer retentions and customer satisfactionactivities. I give a look at price components too: how to breakdown downpayments, prorata andcollectionpoliciesmayhelpthebusiness.
Summary:
SettingPriceisnevereasy,especiallyfornewproducts. Yourindustry,YourCompetitors,YoursupplychainandYourCustomermayhelpyou findtherightone.AndPriceisaverystrongtooltomaneuverintothemarketarena Havingaclearunderstandingofhowfarwecanplaywithit,mayhelpalot,lateron.
CWhatadditionalcostswillbesustainedbytheCustomer?
Price is not the only thing our Customer will pay for our solution. She will sustain costs to make our product part of her world. Not only she will have to modify her
habits,orchangethewayshethinkstotheproblem,butwillneednewinvestments, new infrastructures and systems. Sometime she has been able to externalize the costs of the problem. Our solution could bring these costs back. In this case the assumedvalueofourideacanbemuchlowerthanwhatwecanthink.
Investments:
Implementing our idea inside Customer process may require several investments on her side. A part the hard Stuff capital equipment related to our product, our idea can bring into the game a change in technology standards, so causing the need of spendingtimeandattentiontomakeitfitwithherworld:herphysicalandhersocial environment. Adopting a new solution could require to our Customer to adjust her image (or brand) to the new solution adopted. For this reason I think carefully how thisnewideacanimpactherbrandorpublicreputation.
Systems:
I make a distinction between the investment needed to assure the interface of the new idea in the customer process and other costs related to services linked to the new solution. Making this distinction helps me generate more ideas for complementary product and services, thinking the way to extend the idea from its basic functionality to the services that can be sold separately, to the systems and platform could be needed and ultimately to the emotional and sensorial part of the offering. For example: Customer may need training, may need help for installing, connectingorjustsettinguptheattributesofourproduct.Shemayneedtopayfor new taxes (or get some incentives) new insurances, new licenses. Later on she may need maintenance and upgrades or modifications. The advantage of thinking from the beginning to a service plan is that when the sales will have generated a fleet of installations,applyingtheservicemodeltothisfleetwillgiveaclearindicationofthe potentialservicemarket.
SwitchCosts:
One of the annoying thing about innovation is that there is always the need to convince customer to leave her old world for the new world. Customer has (or at least she think she has) always found a way to cope with the problem: has found a partial solution, a less efficient solution or simply found a way to transfer the costs incurred for not having solved the problem. Adopting our new idea can bring back some of this costs. Making her switch to the new solution shall give an advantage not only in terms of greater value but many times the additional value shall be so greatthatcancoverthecostsalreadydigestedbythecustomer.
DSummary:
A new solution does not bring only advantages. Customer will need to pay a price and to bear some additional costs, to change her world and adopt our idea. So the
real value we can assure shall discount our Price and the new Costs. To have a chance to sell our idea, the remaining value shall be several times the value destroyed in Price and additional Costs. Gauging this ratio in other similar situation the Customer has been involved, can give a way to define the final Price we can legitimatelyask.
2/4IstheSolutionaccessible?
Thesecondstepoftheroadmaptomarketcheckstheaccessibilityofthesolution. Customers must be able to acknowledge the existence of the solution and the solution shall be physically in their reach. Possibly they should love the solution so muchtopreferitoveranythingelse,whenevertheyneedit. Everybody else is trying to do the same, making any effort to get Access to the Customers mind and assuring their products are readily available to the hands of the Customers. But the real goal is to make Customers Mind get access to the idea ofthesolutionitself. If Customers mind has not easy access to the image of the solution, the solutions is notexistent. Thinkthispointinthisterms:WeneedtogetAccesstotheCustomersmind, Clearlycommunicatingthebenefitsofouroffer,specifyingitsuniqueness,andwhyit is important for achieving the Customer Goal. But when inside of Customers mind we need to help his mind find our solution among a lot of other ideas that are crowdinghisbrain. Is exactly the same as being in a Supermarket. If You want your product get found youhavetoputitintherightshelve.Youhavetoassociateyoursolutiontotheright mental category. And when on it you have to make it different enough to be immediatelyspottedamongothers. Thebetterwaytoputourproductontherightshelveandmakeitthebrightestonit, istobuildourownshelve,andmakesureourproductistheonlyoneonit.Asthose cardboarddispensersatyourfavoritecornershop.Thissoundsfamiliar,doesnt?
amindgettingaccess
AHowwilltheCustomerknowaboutthesolution?
Being able to capture the customer attention and let him decide to bring home our solution is part of the game of making our Idea attractive. How the customer is pulled to our offer is a process that involves several parts of our organization. I start identifying how the customer will get in contact with the idea that the solution may beagoodfitforhisproblem.
DowehaveaclearUniqueSellingProposition(USP)?
Eventhebrightestideadoesnotsellbyitself.ItmustbeproposedtoaCustomer. And every time we make a proposal to a customer we must say: buy this product youwillgetthisspecificBenefit. This proposition must be something that the competition either cannot, will not or does not offer. It must be unique. It can be a unique feature that delivers an important benefit to the Customer, it can be a claim not otherwise made by others before,itcanbetheeffectofaBrandthatcarriesitsownUSP. Anditmustbeselling:mustbeofimportancefortheCustomer,meetssomeexisting desire,beabletotacklewhatismovingthecustomer. AnditmusthaveaFeeling:apersonalnotethatmakeitmemorable. (DearReeves,IbegYoupardon) There are 3 main ways to identify the right USP: 1) find the USP into the product, 2) Build a USP into the product, 3) tell something about the product that has never beentoldbefore.
Once you have identified the USP, be sure not to confound it with other messages, jinglesandallthosethingsthatcandistracttheattentionofyourCustomerfromit.
Isourpropositiondifferentfromanyotheroneinthecustomermind?
Its not enough that we make a unique proposition to our customer. It must be clearly different than the other propositions on the market. And because this is a push market era, we must be able to position our idea in the Customers mind as differentcomparedtotheothers.ItsintheCustomersmindthatwefightourbattle forbeingselected.
TheCustomermindisaverycrowdedplace.
Its a parking with a finite number of places. Each place is a solution ready to be deployed to solve a particular problem. The brain is a valet that has to remember where the right car is for the right problem. The Customer served faster are the one whose car is parked on a memorable spot. I park my car always in the same parking space. Its a parking space that is clearly recognizable. If I cannot identify a parking spacethatiseasytofind,IparkinanareaoftheParking,thatIcaneasilyfind.AndI Park in the first spot: the one that is easier to be seen from a distance. This is becauseIdonotliketowastemytimelookingeverywhereformycar..
TheparkingspaceofanideaarementalCategories.
If people are looking for a fast car they will probably think immediately Ferrari. Fast car is the mental category where the product Ferrari is parked in our mind. For those that have a big brain, with lots of parking space, the fast car category is an area. But still the first car that can be seen from a distance is that one colored with a bright Ferrari red. And only with an effort we can see the Porsche parked justbehind. When I want that my Idea is being remembered, I try to find a bright new mental category,andifitisabroadone,Itrytorankmyideainthefirstplace.
Tofindtherightmentalcategory,
I start with what the people already name my new Idea. Good evening Mr Flavio: Youwillfindthecarintheusualspotplace.... Sometimes, to find a good place that I can recall easily, I think how other people would try to find the right parking lot, and I rush to grab it. In other words, when looking for mental categories: think from your competitors point of view about your Ideaandseehowtheywoulddefineyouridea. A practical way to look for positions, its to list the Features of the solutions that can be used to solve the same problem our Idea solves. Then ask the Customer to score each feature from 1 to 10, with reference to a competing solution. Reviewing the scoreswillgiveanunderstandingofwhoownswhichmentalcategory. OncedefinedwhichmentalcategoryIwantmyIdeatooccupy,IsearchforaName.
NomenomensaidRomans:
a man Destiny is written in his name. The same is true for products. Because Names are the first contact point between message (our proposition) and mind (our Customer). This is the reason why the name of a new Idea shall stood for something:ShallconnoteaBenefit.Acoinednameshallbeusedonlyforideasthat are first timers: something so innovative (and lucky) that nobody has presented before. Other ways, avoid mean nothing names. And if our Idea has already a name, but does not sound good (Company are visual but Customers are sound oriented): betterchangeit. (Jack,Ibegyoupardontoo)
Whendoweneedabrand?
Brandsarebettercreatedwheninunderperformancetoreassureclients(andtheir boss)theycangetthebest,andtargetingthehighendcustomers. whenoverperformanceoccurs,brandsmigrateonsubcomponents(intelinside). wheneverythinggetcommoditized..thenthebrandgoestothechannel(decathlon) asawaytosignalmaxconvenience. InB2Cyouneedtocommunicatetothecircumstance,butwithatimelag.Forthis reasonmainlyinB2Cyouneedbrandpositioning. Positioningonthe"jobtobedone": ifabrandmeaningispositionedonthejobtobedone,thenwhenthecustomer happentoneedtodothatjob,willrememberthebrand brandingadisruptiveproducts:canbedoneaddingawordtothemainbrand:so thebrand+wordwillcommunicatetothejobtobedoneatCustomers(Residence Inn...byMerriot) Butpleasedonotuseumbrellabrands:theylosetheassociationwiththejobtobe done...confusesthecustomer.
Whichmessagewillimpactthecustomermind?
Thisquestionisoneofmyfavored.Becauseinalltheanalysisistheonethatinvolves more creativity. I recommend that you bring in someone creative here. Cause if you are a logical and analytical person, you are too much into the details to find a messagethatistrulymemorableanddifferentforyourUSP. Whenamessageisfound,Ijustmakesomechecks:Iverifyifitiscongruentwiththe wayourCustomertakesdecisions.
Peopledecidein4differentways:
By intuition: this person avoids details and looks for the big picture. He or she Is moreinterestedinwhatiscomingnext.PerfecttosellNEWtypeofproducts. By thinking: these persons process a lot of information and align them in a logical way.Todecidetheyneedfactsdatareviews. ByFeeling:thisonesaremoreinterestedinthefeelingofotherpeoplearoundthem
than the benefit our idea carries. They just love to participate, and are very loyal to the group. They buy from experts that looks and sounds real: they buy what the Big Boybuys;theybuywhateverybodybuys. By sensing: The last one is capable to handle details and is very good in putting things in context. To sell You should give a reason to accept your idea is the best solution,giventhesituationorproblemtosolve. Anyhow, finding the right message is easier when we appeal to the Beliefs, Feelings andDesiresofourcustomer.
Anothercheck:
Icheckifthewaythemessagehasbeenconceivedbymycreativefriend,hassome practicalrequisite: It should bring at the attention of the Customer a (one) Benefit (the one we defined inUSPnotothers). It should show a need, satisfy the need and position (differently) the Idea as a solution of the problem (positioning the Idea in the mental category we identified anddefined). ItshouldprovethatourIdeacandowhatwearesayingitcando. Finally the message should ask for action: it must be clear to the Customer which is thenextsteptogetourIdea.
FewrecommendationsaboutPowerPointpresentations:
pptpage=itsheadlinemessage When I create a ppt, I give the greatest importance to the message that comes out fromeverypage. I stick this message in the headline of the ppt page (and strive a lot to make it clear andpassittotheaudience).Therestofthepage?Iuseitonlytoreinforceandmake memorabletheheadline. ThemessageofeachpageformtheargumentIwanttodisplaywiththepptpitch. To me this is so important that I suggest to the person (usually a GM or CEO) who willpitchtheppt,tofocushis/herattentiononlytotheheadlines. If the sequence of headlines conveys what he / she is willing to tell, the ppt presentation works. If not there will not be Steve Jobs pitching it, who will make it work. To create a ppt like this, sometimes it takes me up to 1 day per page and each presentation ends up between 12 and 15 pages that will be delivered in ca. 2030 min. I got feedbacks like the Client made us compliments for the clearness of the pitch or they never realized before our strategic options like today but the ones that I appreciatethemostare:WegottheOrder!ortheyapprovedtheinvestments. I suggest to try this: cut out all the headlines of Your ppt presentation and write themdownonasinglepage.Iftheymaketheargument,youareontherightpath.
HowwilltheCustomergetincontactwiththeidea?
There are several communication channels to take into consideration as possible means to reach customers neurons. I summarize them into 3 categories, depending on the type of audience they will address. If the solutions is for a very large community of customers, the main way to get in contact with this people is through a promotion activity that involves the use of Paid Media. When the solution is something unique or it needs a special explanation and dedication to introduce it to the customers neurons, you need someone that makes a referral or recommendation of your solution. Each of this mediators has to be earned to the cause, and therefore are referred as Earned Media. The last type of channel reaches the customers through a special kind of referral: someone that pull together a list of names of people that most probably are looking for a solution to a problem. This is more or less the mechanism through which Direct Mail, mail orders catalogues and even SEO marketing are leveraging. Its like when you call a person directly, with no mediainbetween.
5keydifferencesamongB2BandB2Cmarketing:
Before to look at the communication channels we can use to reach the customer, I would like to point out why I see B2B and B2C marketing different, and tackling this marketsrequiresdifferentapproaches. The main difference is that B2B Clients MUST buy: any Company has a purchasing department whose sole scope is to provide the input for the organization. And withoutthoseinputstobeprocessed,theorganizationsimplyhasnomeaning. A totally different scenario is the one of consumer Clients: they have to be MOTIVATED.Weconsumershavereallyallwhatweneedtosurvive:air, water,some fruit.Consumersneedtobefosteredtobuy,creatingreasonforthemtodoso. Its a different perspective. While B2B clients must solve an existing, compelling problem,aConsumerhasnoproblemreally.Hemayjusthaveemotions. When in touch with a purchasing manager, we have to solve his problem and do it now,beforeacompetitorwillprovideanotheranswertothatimmediateneed. AConsumerseesanadvertisingwhiledrivinginthecar,andneedstorememberthe messagefordays,beforeithappenstohimtobeinthefaceofashopclerk. A B2B Client needs to buy based on informed decisions and we win if we are able to providealltheinformationneededtotakethedecisioninourfavor. The Marketer targeting Consumers knows that their buying is made in an impulse, some when in the future. He has no control over that moment, so he has to create
animageandbuildproductawarenesslastingforever. But the most dangerous difference is that purchasing managers and their team, oftenknowmorethanourselvesaboutourproducts.Theyarehighlyeducated,with degreesandspecializations. Selling to consumer, is often selling to a much less targeted and less educated mass ofpeople.Informationcanevenconfoundthem. These 5 differences lead to a conclusion: B2B marketing is well suited for Direct Marketingtechniques:advertisingthatsell,andsellitnow. B2C marketing can be more about image, emotion and feelings, cause the sale is postponedrespecttheadvertisingactivity. IfyouaresellingtoB2BpleasedonotletyourCreativepeopleforgetastrongcallto actionandsellingmessageinyourMarketingcampaign.
B2BvsB2C
ReachingthecustomerthroughPaidMedia:
This channel is dedicated to many people. Here is all about Promotion. It requires large investments, a definitively good positioning (way to be memorable) and often counts on surprise and tactical moves to assure first move advantage in occupying customersneurons. Assumedwehavealloftheabove,wemaywanttocheckhowlargeisourtargetand if we cover all the main parts of it. But just covering its not enough. We must be
able to penetrate the memory barriers of the Customers (or at least a good share of them)withthelowestnumberofmessagerecall. We can promote our message mainly in three ways: by talking, by showing, by emulation. In the following lists we may rapidly check how we want to talk, show or invitetoemulate: Talkingmedia: Radio, TV, theaters, Cinemas, events, training, conferences, videos, concourses, talk shows,critiquesandreviews,telemarketing. Showingmedia: Board, Flyers, brochures, mobile advertising, posters, calendars, catalogues, press releases, books, magazines (industry specific, general, local, gossip, merchant, magalogs,inserts). Emulationmedia: Politicalorganizations,clubs,peoplecircles,socialinstitutions,artscirclesetc.
ReachingthecustomerthroughEarnedMedia:
IfourIdeaneedsoritsfuntotalkabout, maybewecanusethewordofmouth. We need to consider the potential network path among our customers, and ways to use it.Thenwecanjusthopethatthepowerofthewordofmouthcanspreadourideas likeavirus. Leveragingwordofmouth: As an arsonist, is more important to chose the right forest than the right tree to create a great fire. The audience, in other words, must be receptive. We may help the spread out, giving the right tools and the right storymost probably people will tell our story to others. Here an emulation factor plays too: if people can see each othersreactionwhenfirstmeetingtheidea,thiswillhelp. Leveragingournetwork: Our best partners in sales are our Customers. They are the one that can easily demonstrate the benefit achieved and explain them to others. Then come our reputed partners: our suppliers, and our customers suppliers; other organizations that target the same customers solving other or complementary problems. Talking about organizations close to our business, a special mention goes to those that integrate different solutions into a larger system, like Engineering Procurement and Contracting (EPC) Companies. Finally there are certain number of associations that may be of interest in spreading the idea: like noprofit organizations that may want
touseoursolutionsinexchangeofpublicrecognitionorbrandreinforcement.There are even professional associations or teaching institutions that may be interested in ourservices. Leveragingspecialagents: Some organizations have mastered the use of referrals, creating new sales models. Think about Herbalife sales model that recruits its own Customers to organize privatedemonstrationsintheirlivingroom.
ReachingthecustomerthroughNomedia:(internetanddirectSales)
Using third party customers lists is a way to target customers with a specific problem. The more the list contains customers selected on the criteria of having a specific problem, the better the list is. You can use the list to target clients with Cold Calls (even if its not my recommended option ), Direct mail (a true art apart in marketing)ormailorderscatalogue. Ievenincludeinternetsalesintothistypeofsales. The principle at the foundation of Pay per Click advertising is that Google matches foryouaspecificcustomerwithaspecificneed,withourspecificsuppliersolution. The better we refine our Pay per click campaign triggers, the closer we go to that customer with that problem. And because the Customer is online, looking for a solution,ourpropositionbecomesverytimely.Hehastheproblemrightnowandwe havethesolutionathisfingertips. Usinginternettosellhaschangedalotinthelastyears: At the beginning of the internet websites where conceived as shop windows; then thefirstwebsitelistingcameupandwithitthestartofadvertisingoninternet. Stuffing the website with interesting content is still a way to attract potential customers and to be ranked into Search Engines as AltaVista, Yahoo, and lately Google. But is not direct sales. A model closer to the concept of direct sales came eventually up,andithasbeendescribedastheAgoramodel.Hereasetofinternettools(asa webpage or a blog or a banner) solicit the customer to trade his personal information the email for a free piece of valuable information, ( or, e.g., the permissiontouseainternettoolasageographiclocatororasalarycalculator,etc.). Finallytheemailssetisusedtoproducetargeteddirectmailcampaigns. Today with Google taking care of matching a specific Customer Demand with a Specific Supplier Offering, we have outsourced the problem of getting and managingalistofCustomeremails.
What we need to do is to optimize our internet sales system to help Google match ourIdeawiththeCustomerinneedofit.ItscalledSEO(searchengineoptimization) andithasbecomeamandatoryoperationforanyonlinebusiness. Itrequirestoalign4componentsofourinternetsalesprocess: 1) trickstoassuretheimpressionsandtherankingontheGooglepages, 2) DOE (design of experiments) to identify the best images and sentences that willconvertimpressionsintovisitsandvisitsintoorders, 3) a strong set of KPI and metrics to monitor effectiveness of our online messages, 4) acustomercareprocessesthathelpscustomertobeconvinced. In other words: Pay per Click advertising requires sound marketing and sales processes. I split further these processes into two groups: the first leverages tolls and procedures to promote the offering, the second uses other tools and procedures to referthecustomertotheoffering. I consider web referral tools the complementary websites (but owned by the company)thatofferfreeuseofwidgetsandcalculators. Visiting them the customer receives a free service but even a dose of advertising too. Blogs can be seen like that as well. Wikis offers information instead of calculatorsortemplates,butworksinthesamewaytoo. Going more social there could be websites that are a kind ofYellow page for specific customerscommunities.OthersthatratesCustomersbusiness,oroffera2ndopinion ontheperformancemadebythecustomersorthesuppliers.FinallyhereIlistsocial communitiesorwebgroupstoo. I consider web promotional tools those that through nonproprietary internet channels (through which you can display banners and links) or come directly from the main companys portal, like direct emails and appointments, SMS, newsletters andwebconferences.
Summary:
With this overview we should have checked out most of the possible contact points with Customers Neurons. Whatever we are going to use, having one in place is mandatorytoassurethatourproductattractivenesscanalertcustomerattention. If You are going to use more than one: You can focus each of them for different purposes: this is a schematic list I use in B2B, but is not mandatory neither
exhaustive: Magazines:IusethemasBrandReinforcement Direct Calls, contacts: I move these actions from Pre (first contact) to Post (followup,customercareandclosing Advertising: I tend to use them to alert customer attention on future appointments:toannounceaconference,apresentation,atraining Word of Mouth: Customer referrals are the best ones: I love when Customer showmyideatotheirfriends Referrals:Iaskpartnersforreferrals:mysuppliersarepartnerstoo.
BWherewilltheCustomerbuythesolution?
The other component of the Accessibility, is the physical distribution of our Idea. Customers must be able to take home or at least being able to use our idea at his will. TheLogisticpartisanimportantelementofourIdeasuccess.Torealizehowtomake our idea available our idea to the Customer can take several ways. Today with the Logistic industry and the decoupling of sales information from the product allowed byinternet,thesewayshaveincreased. But the transfer of the Idea from our inventory to Customers inventory is a crucial moment, even if there is no sales involved, because its a moment where we get to know the customer in person. This is the time we can learn from him and instruct him. As marketer, I am more concerned to understand where the transaction will takeplace,thenhowtheCustomerwillgetinpossessionofthesolution. There are dozens of logistic channels to transfer an idea to the Client. But there are onlytwotransactionplaces:Inourbooks,insomeoneelsesbooks.
Inourbooks:
We may have our own shop, or a corner in someone else market place, or run a internet shop on our website. When we handle the ideas distribution directly, the Customer belong to us. All his feeling, feedbacks, competitors information are at ourdisposal.GettingtoknowtheCustomerpersonallyisasureboosterforsales.On the other hand, we cannot be every time everywhere. And this will limit our revenues.
Insomeoneelsesbooks:
We may ask the help of someone: we may sell through internet market places such as Amazon, through distributors: Licensors, wholesalers or retail chains. We can build partnership with other players that serve the same customers and can get
benefitinbundlingtheirofferingwithourproductorservices. But Customers will belong to them. We will sell more, but we will not know to whom. Ifknowingourcustomerverywellisimportant,thisisthetimetothinkhowtobuild Customer cares processes and feedbacks processes. And keep Competition in the radarscreenforgoodideas.
CWhichisourSalesCarousel?
Wecannotthinkthatthepiecesofaccessibilityjustmentioned: gettingtheideaintheCustomermind,and managingthetransactionprocess, willsticktogetherandmagicallygenerateorders. Ifyouareexperiencingthis,probablyyouareinamarketinDemand:yourfisheswill biteanythingcanmerelyseemsedible. TheCustomerAccesshastoberationalizedintowhatIcallthesalescarousel. We should create a single system that assures that the potential Customer is identified,informed,convinced,servedandleveragedforfurthersales. The sales carousel is a model that works well for B2B business, where Customer knows to have a problem, and is looking for a solution. It works well for internet basedbusinesstoo:peopleusinginternettofindsolutionsaregenerallyconsciousof having a problem. But I think it works also for B2C in general, at least as a framework. The sales carousel is that framework of activities we have to put in place to transformapotentialCustomerintoaCustomerthatsignsanorder.
TheSalesCarousel:
thesalesCarousel
UsingthesalesCarouseltomodelyoursales,willfocusyourattentionon
3keycomponentsofthesalesframework:
Traffic(creatingastreamofprospects) Engagement(meetingyourprospects) Conversion(makingyourofferaccepted) Anddesignafunnelprocessthatwillgofromthefirstpointofcontacttooneof
the4landingoffers:
NOoffer(whenprospectisnotconvertedatall) Lastoffer(whenprospectleavesyouatleastanexplanation) Softoffer(whenprospectacceptstokeepintouch) Hardoffer(whenprospectbuysfromyouandbecomecustomer)
Alongoneofthe3maindirectionshecanfollow:
Thedirectories(listingofsolutions) Theadvisors(comparisonsofsolutions) Thereferrals(endorsementofsolutions)
TheTrafficArena:
Thefirstscopeofanysalesinitiativeistoreachoutasmanycustomerispossible. Asmainadvertisingprofessionalssay:coverageismoreimportantthanfrequency.
But who are you really trying to reach out? Internet based businesses divide into 3 categorytheprospectcustomers:
prospectcustomers:
Browserswanttomadeuptheirmindandarelookingforinformation Shopperstheyknowthesolutionsandwanttocomparefindoutthebest Buyerstheyknowwhattheywantandlookforthebestdeal. Eachofprospectcategoryhasthereforeitstrigger:
Prospectstriggers:
BrowserlookforDATA ShopperslookforDELTA(ordifferences) BuyerslookforDEALS(prices,orshoppingconvenience,ordelivery) Every one of us would love to deal just with buyers, people that come to us already sold. But unfortunately is not like that: most of the prospects need to get to know that there is a specific solution for their problem ( someone does not even know to have problem, by the way) and those that have identified a potential category for solutions,needtobeconvincedofourproductsuperiority. Soweneedtoofferthemapointofcontactthatisrelevanttotheirneed. Thepointsofcontactcanbesummarizedforeachprospectcategoryasfollows:
Typeofpointsofcontacts:
Browsers:offertheminformation o Liveinformationlikeblogsorforums o Systemicinformationlikeeditorials(books,articles)orcourses,lessons Shoppers:offerthemcomparisonofproducts: o Claimslikeanytypeofadvertising,whosejobistoproofsuperiority o Testslikethirdpartyreviews,laboratorytestsandcomparisons Buyers:offerthemamarketplace. o Marketslikeanyphysicalorvirtualplacewheretheyknowtheycanbuy o Agents like any person that can refer your solution and facilitate the transaction,forfree(referrals)oratacost(salesagencies) Prospectsreachouttherelevanttriggerfollowingprecise
Trafficdirections:
BrowsergettoDATAthroughLISTS: o Google(afterall:thebestdirectorysofar) o Catalogues
o Yellowpagesandotherdirectories ShoppersgettoDELTASthroughADVISORS: o Advertising:PayPerClick,butalsoanyothercommunicationmedia o Consulting:theymayneedsomeoneexplainingthemthedifferences o Ratingagencies:fromStandard&Poors,toyourpal BuyersgettoDEALSthroughNETWORK o Canbeourownpersonalnetwork o Referredbypartners o And of partners of partners ( up to the 3rd degree: the one that allows at leastonepersontobeknownbyboththeothers) Is up to us to assure that prospects traffic along each direction is maximized. The more prospect we are able to capture, the greatest the chances of business. We need to be present on the LISTS, be recognized by ADVISORS and on the mouth of our NETWORK. And for each type of prospect we must be able to offer what she wants:whethergreatDATA,clearadvantages(orDELTAS),orgreatDEALS. But the ultimate scope of the TRAFFIC ARENA is to convey the prospect to the engagementarena.
TheEngagementArena.
In internet you may call it landing page, in daily life the landing page can be a corner,aSHOP,anofficereception,oryoursmilingface. The engagement arena is the moment when you make your first impression, declaringthebenefityoucanoffertoyourCustomer. And since everyone is emotional, keep in mind that people tend to buy based on how they anticipate feeling as a result of owning and enjoying a particular product orservice. Therearetwotypeoftypeofbenefitsyoucanpresent: 1)YoucanoffertoELIMINATEaproblem. 2)YoucanofferyourhelptoACHIEVEaresult. Yourfirstimpressionshouldbeabletoaddressthepain,orfeeling,ofyourcustomer, causedbytheproblemheneedstoeliminate. Or it should be able to address the desired outcomes, and therefore the state of mindthatreachingtheresultscanproduce. Making a good first impression is important, wherever you meet the Customer, if youwanttoengagehim,andtransferhimtotheConversionarena.
TheConversionarena.
If you have been able to capture Customer attention, there are only 4 options you canoffertohim:
The4offers:
Nooffer:whencustomerleavesyouwithnothinginthehand Last offer: when you can ask him to leave at least her phone number, email or business card, or as a minimum an explanation why you have not been able to satisfyherneeds. Softoffer:whenyouareabletoconvinceyourcustomertoreceiveasmallgift,in exchange of the permission to record his contacts and get back to him with betterofferinginthefuture Hard offer: when you can sign a deal with your customer, and hopefully deliver thesolutiontohisproblems Everything in your Conversion Arena should be made to funnel the Customer to one ofthelast3typeofoptions:LAST,SOFT,HARD. Thefirstoption:leavingwithoutanyexplanation,isadefeat.Weshouldinvestigate. Isanoccasionforlearningfromourownmistakes.
TheSalesFunnel:
Creatingtherightsalesfunnelistoughandrequiresabitoftryanderror.Ifyouhave budget you can do more than rely just on good judgment and experience. You can use advanced statistical methodology as DOE (design of experiments) to test what worksbesttobringtheprospecttoanagreement. TheFunnelcanbequitecomplex:thinktothisexampleoftheDefenseindustry: For items sold to the Defense industry you may need to intercept the Political representative, make sure he is aware of your company, and then you can contact the CEO of your Client and make sure he approves a visit of his strategic sourcing manager. If you pass the visit You will be contacted by a sourcing manager that will ask an offer for the evaluation by his technical team. The team could then endorse the offer and you will get an audit from a Quality Inspector. If you pass this and get the order, the first pilot production will be under the radar screen of the manufacturingmanagerofyourClient.Eachroletakesaprecisestepin theapproval process.Youmustbereadytolinktheactors,notonlytofeedthem. My advice is that whatever is the string of logical steps you have arranged to bring your prospect to buy, define their effectiveness relying on data and, if you can, get backtotheultimatejudge:theCustomer.IftheCustomerlikesitleaveitlikeitis.
Theoccasiontobuy:
Startingtodesignthesalesfunnel, youmaywanttostepbackandtrytoseewhatis the occasion that brings the customer to a purchasing decision. When you think to the occasion to buy, could be useful to clearly understand if the purchase is made by impulse (B2C) or it was planned (generated by a business program)(B2B). The occasion to buy can be fostered ( is made after an initiative that motivate the Customer ) or can be forced ( induced by a change coming from the outside of the Client:newmarketdemand,ornewregulations,newtechnology) This gives you the context, and helps design a funnel that respect customer expectationsintermsofusability.
Thepointofcontact:
The next thing is to identify where the Client has the first contact with you and your offer.ThepointofContactistheoriginofthesalesfunnel.
Thebait:
When you identify the point of Contact you can organize your bait, and from therelinkalltheactorstillasuccessfulorder.
Theusability:
On internet, but I think is valid in life too, the chances to convert your prospect and made him apply to one of your offers are limited. For this reason simplicity is mandatoryinyourConversionarena.Ininternettheytalkaboutwebusability.The main factors increasing the usability ( and therefore to reduce the chances of a NO OFFER)are2: creating pages that can be scanned in an instant and where the visitor can immediatelyidentifythepossibleoptions(betteriftheoptionsare1only) Understand that visitor tend to click on the first reasonable option, not on the one that is more colorful or the one that is more logical. They have always the chance to retry, so be sure that the reasonable option is the one you want they pursue.
Measuringtheconversionrate:
If your Conversion Arena is well structured, every step your prospect does, is a logicalconsequenceoftheprecedingone. Thismeansthattheconversioneffectivenessofeachstepcanbemeasured. For Example: participating to an Expo can generate Customer Contacts. Those Contacts can be used to check interest and deliver a sample. Samples can be linked to feedback and feedbacks to offers. Hopefully we will get orders and an happy CustomerthatwillreferourStandtoanewVisitor. Measuring the effectiveness of each initiative is not only good to adjust our sales funnel, but, as a minimum, to justify our marketing work in the eyes of the Business
owner.
Whatifthefunnelfails?
IfwehavebeenabletoprofileourCustomerandherneedswithaLASToffersurvey, we will have more tangible data to better tune our Conversion arena mechanisms. And if we have been authorized to tease the Customer we can get back to him organizing a refresh to his memory about our services, on a planned, automated or randombase. Plannedcontacts:likebirthdaygreetings Automatedcontacts:likequarterlynewsletters Randomcontacts:likeforwardinganarticlethatcanbeofhisinterest Ifyourprospectisengagedonyourinternetplatform,couldbeworthalsodirecthim toaninpersoncontact, invitinghimtoafacetofacemeeting, orproposingtoattendaneventofcommoninterest, oradvisinghimofyouroccasionaltripneartohislocation.
TheCustomerrelationshipslifetimevalue
The Sales carousel can be limited to capturing of new Clients/orders, or can be extendedtocovercustomerssalesthroughhiswholeliferelationshipwithus. Not all Customers are equally opened to actions that tend to increase the bonding with our company. Creating fidelity through activities that aims at increasing customer satisfaction is an effort that helps reducing Customers acquisition costs butwillbeofferedonlyifthelifetimevalueoftheCustomerallowsit. We can increase Customer relationship lifetime (and hopefully its value) finding dedicated activities to bring the relationship status from: 1) we have been able to convince 2) retuning customer after we tested positively 3) customer receiving consistently better products than competition 4) Customers selecting us without even comparing us to the competition 5) Customers becoming Partners, equally sharingthevalueofthecooperation. Measuring Customers retention rate and the average duration of customer relationship is the primary indicator of our ability to retain Customers, but the lifetime value ( or Customer Equity ) measures how much our Customer satisfaction effortsareworth.
TheperfectwebpageandtheMotivatingSequence
IfoundanicelogicwaytostructurethecontentofaCustomerpitch(orconversion arena).ItscalledtheMotivatingSequenceandcanbeusedalmostforanytypeof media:advertisingpages,weblandingpages,powerpoints,speechesMaybeit willdragawayabitofcreativity,butisasurepaththatdeliversaconvincing message.Hereisappliedtoawebpage:
3/4Doesprojecteddemandsustaintheinvestments?
At this stage of the Roadmap to Market, I have collected enough information about the offering, the customer and how to match the customer to the offering, in order toinvestigatethebusinesspotentialoftheidea. What I am looking for is the number of transactions that I can possibly target, and thecontributionmarginthatIcanextractfromthem. I take 2 steps when creating a demand scenario, trying to match them will help to defineCustomerSegments.
Topdownapproach:
looking for secondary demand drivers: those parameters that are directly (better if throughamathematicalcorrelation)correlatedtotheCustomerbusiness. Fortheoilindustry,e.g.,thedrivercouldbenumberofbarrelsperday.IfIcanlink numberofbarrelstobeproducedbythecustomer,withnumberofgoodsorservice I can provide to the customer, I can have a clear picture of the potential sales in the nextfuture. The topdown approach let me check for factors that can influence the demand on the short, medium and long term. Forthcoming technologys shifts for example. Or tounderstandwhatarethemarketsegmentslesspronetocompetitionswars.
Bottomupapproach:
For those segments that are high potential, I build a refined market view. Here I start thinking more like a sales manager . I need to give as much as precise indicationstoasalesmanagerasIcan.SoItrytobuildforeachsegmentabasketof opportunities, that the sales team can then tap and transform in orders. In this phase, confronting with sales personnel and defining adequate risks parameters to describe the basket of opportunities helps a lot to establish feasible sales targets. (andavoidsalesmarketingdisputes).
AHowmanypiecescanbesoldinthesolutionslifetime?
Assumed that we have been able to quantify the possible market, its time to try quantifythepossiblebusiness.
TAMTotalAvailableMarket.
Connecting secondary demand to primary (our solution) demand, helps define the TAM or Total Available Market. I try to understand the budget of my Customers, their wallet and the share of it that they will reasonably dedicate to solve the problem that my idea is the solution for. Understanding customers priority, urgency and available resources on solving the problem we are targeting, helps understand what is in indirect competition with our idea. Looking to the whole expenditure budgetofthecustomer,canleadtonewIdeas,thatcanbeadevelopmentoropena wholeinthenewmarketspace.TheTAMisasourceofinspirationfornewventures, alliances,JointVentureordivestures.
RAMReachableAvailableMarket
Unfortunately very seldom we can afford to target all the opportunities of the TAM. More often our reach is limited. There are 3 broad category of limitations I consider whenIshrinkTAMtodefinetheRAM.
Physicalreachconstrains
Not all the places are equally easily reachable. Geography and distance have always represented the first obstacles to meet new customers. Even physical communication can be impossible or difficult: Internet is not everywhere, Phone costs can be a pain, press or media can have limited access or refuse to accept our communication. Even physical distribution can be limiting, or be possible only seasonally. Finally Customers should not only be sold but even served. And if our customerservicecannotbepromptondemand,ourbusinesscanbeimpossible:just thinktoserveacustomerwhoisawakewhenyouaresleeping. Limitinginterfaces Even if I am able to reach the Customer I still need tocommunicate with a common language. Norms, Regulations, can limit the number of customer that can be contacted. Standards are quite more often used to limit and secure certain market segmentsthentosimplifytheacceptanceanduseofnewsolutions. Just think that there are more electric plugs design standards, than number of countries! Finally, if our solution goes into a system or needs a system or framework to operate,theownerofthesystemcanlimitouraccess(seeAppleanditsiplatform).
Incumbentorganizations:
Religions have a deleterious influence on buying habits. Mafia of all types can limit your access to Customers. National Regimes can stop the import of goods or being embargoedorsomeideasjustcensored. Some private organizations can put forward existing privileges on the target deal: thinktomortgageorbindingagreementswithcompetitors.
SASServedattractivesegments
Even if Customers are reachable, this does not mean you want to reach them all. Picking up the segments that have the greatest success chances optimizes the resourcesandsupportsteamsmotivation. The priority is based on two criteria: how much the customer needs it and this depends on how he is in demand: how much his market grows. And how easy is for ustoconvincehim.Andthisdependsonthelevelofthecompetition. Generallywecandoveryfewonthefirstcriteria:itssomethingthatisproperofthe Customer environment. Our weapons can be spent only to increase our distance fromcompetitionandourproximitytotheClient. There are further considerations in selecting the right segments: moving in a segmentwithtoomuchrumorcanawakethecompetition.Customerthathasbetter mean time of payment, contribution margin levels, or can enjoy a period of tax incentives or can be sheltered from competitors, may be more interesting than others. Some segments can be important as test area to check out communication or sales process effectiveness. Other may be used to spark the sales in adjacent segments. Theoldrule:startwiththelessdifficultandthegreaterreturn,isalwaysvalid.
BHowmanypiecescanwesellinthesolutionslifetime?
Going from how many can be sold to how many we can sell must bring competitionintotheequation.Customers,beforetobecomeClients,passthrougha sequenceofphases:theymustbereached,convinced,theymaywanttotryus,and onlyattheendtheysigntheorder. Competitioncandentineachofthesephasessuccesspercentage.Itrytofigureout, with some test if necessary, or comparing similar situation by means of ratios, the successpercentageineachofthephaseofthesalefunnel:percentageofcustomers reached by us, of customers being interested in us, of customer trying us, customer orderingtous.
ListingCompetitors:
You cannot gauge your success chances without measuring those of your competitors. In theory we may need to repeat the whole Roadmap to Market for each one of them. But this depends on resources, timing, and convenience. In any case before to assess them we have to identify them: to create a list of competitors, the best way is to ask the Customers to highlight how they are or they have tried to solvetheprobleminthepast.Competitorsarenotonlythosethatprovideasolution for the problem, but even those that provide shortcuts or ways to go around it. Those that provide alternatives or that can simply deroute the budget of expenses forthesolutionoftheproblemtoothermoreimpellingneeds.
ScreeningCompetitorsappeal:
Even if the full Roadmap is a great tool to screen a competitor, I tend to gauge their appeal thinking to the most critical features. The first is the amount of value they can provide: first I qualify the values components and try to identify their competitive advantage (whether of cost or differentiation) comparing alternative solutions. Then I make an estimate, quantifying the value, and subtracting Price and infrastructurecosts.
Checkingcompetitorsreach:
Not all the competitors play everywhere. Sometimes it can be worth signaling hunting territories. Search for their distribution channels can highlight white spacesorprovidegoodhintsofimpracticalmarkets. Having a clear understanding of their communication channels, and their messages, allowstochooseapositioningthatcangoroundthem.
PreparingtoCompetitionresponse:
I do not expect that competitors are lesscleaver than me. Most of the time they are smarter and with more experience in the specific market. They react to any threats. Many of them have counter measures ready to be deployed. So do I. The general rule I use in thinking to move forward, is working as a cowboy: I do not plan specific moves and counter moves. I prefer to give the direction towards a destination. So I prepareinadvancefencingandroadblocks.
Summary:
Having a better understanding of the competition, helps us gauge the market share. Better: gauge what can be considered the share of the Served Available Market. The final figure can be estimate by ratios, DOE (design of experiment, split tests, statisticalanalysisetc.).Buttheabovescreeninggivestheelementstobeconsidered intheestimate.
CHowordersopportunitieswillchangeinthesolutionslifetime?
Understanding market dimension and how much we can win against the competition today, is not enough. Market changes for a number of reasons. The same do the opportunities we can win in the future. When trying to project a sales scenario in the next future, I check out some external and internal forces that may haveanimpact.Someonecancallthisasensitivityanalysis.
ChangesofDemanddrivers:
If I am so fortunate that I can build, borrow, buy or steal data about the secondary demand, I use them to derive my primary demand forecast. To make an example: from Oil demand projections I can derive the gas turbines demand over a period of time. What is good in this approach is that generally You can leverage secondary demand data that are built by organizations (public or private) that have a lot of knowledge, big networks and smart people to do it. So the primary demand is not only linked to my Customer Business, but is often more precise then what I can dreamtobuildbymyselfandwithasmallteam.
The5forcesimpactingdemandtrends:
Porterhastaughtthatthereare5forcesimpactingthemarket.Lookingonhowthey will evolve or change in the future leads to understand how market will change. The forces are: Customers (and we just checked them), Competitors, Substitutes, New entrants and Suppliers. How the bargaining power of the last one, suppliers, will change, could affect directly the competitors cost advantage strategy. Furthermore if you are in Partnership: check out factor that may change the partner and the partnershipitself.
The5culturalfactorsimpactingdemandtrends:
Market is a place influenced by cultural factors. General economic trends impact eachsinglemarketcomposingtheoveralleconomy.Marketscanbedepressedorare in opposite phase or neutral. Markets can behave differently depending on the demography of their visitors: death or life rates, life expectation, regional density and their variation in time affect market vitality. People may decide to apply new norms or regulation to a market. A market can be heavily influenced by fashion trends, political and social culture shifts. Even technology, incumbent or substitutive,orjustforcedbytheintroductionofnewstandards,change(sometimes abruptly)themarketonthefly.
HowweimpactShare(Organicsensitivity):
All of the above are exogenous forces impacting the market trend. But there are severalinternalfactorsthatcanalterthefinalsalestrend.Priceisoneofthose.Price can vary faster than offering and market. A bad pricing policy can even destroy a
market.Allthemeasuresthatcanchangethecustomerperceivedrisklevelcanopen (or close) potential market space. Commercial effectiveness (in internet: Conversion Rate ) is a big player in defining the final market share. Being able to deliver what you promise is another big factor in the final sales figure: money back guarantees or scrap substitutions may dent how we are perceived and impact the final market share. Finally, fine tuning all the parts of the buying process can assure constant success rates. Making them loose, can introduce unwanted variation into business targets.
DWhichopportunitiesdowereallysee?
All the above analysis allow us to create a structured frame where to collect in a consistent way all the market information (or in other words: allows us to build the structure of a CRM database that collects just the information needed and not any kindofpossibleinformation). Furthermore we now have an idea of where to concentrate our efforts: which marketsegmentsisworthtobetterunderstandandverifyonfield. The only way to asses all our work is to verify if building the same information from thebottomallowstoreachthesameconclusionaboutmarketsizeandpotential. Withabottomupapproach,andstartingfromthemarketsegmentmorepromising, I try to build a list of opportunities. This list will validate some assumptions made in thetopdownprocess,andbuildsomeimmediatetargetsforthesalesforce. Nothing better than start with a Customer Names list. If You have a name You may qualifythepotential.Youmayseethedifferentdegreesofpenetrationandtheshare of wallet your solution will compete for. You may check the obsolescence of existing solutions.Salesforceshouldhavemoredatahere.Ifweareluckyisonlyamatterto reclustertheinformationtheyhavewithinthedatabaseweown.
Summary:
Being able to define our potential sales is a wizard work. In B2B, to look into the future, I try to build a model of my target market, linking Customers sales to my product sales. If I can build a mathematical correlation between his sales Quantities and my sales Quantities, I use it to create a quantitative model that can be manipulated to weight future scenarios. This means check out how exogenous and endogenousfactorscanmovethequantitiesupordowninthemediumterm. From general figures that take into account the overall expenditure budget of my Client, I come down to sizing the opportunities that I can really reach. Then I factor theCompetitionin,andwhatwillbemymostprobableshare. The good thing in working with quantities, and not just with dollars value is that I can asses and verify much of my assumption building up the same model from the bottom: i.e. summing together all the real opportunities ( in quantity, not in dollars
valueofcourse)thatIcanactuallysee. Generally when trying to match the assumption made from topdown ( marketing) to the tangible figures coming up from the bottom (sales) has two beneficial effects: make the assumptions on market more grounded and shared among the team, andmakevisibleactualopportunitiesmoreintothefuture. Itsawinwinsituation:marketinggetsnaileddowntorealityandSalesgetsheadup tothefuture.
4/4Doesthesolutionleaveunitmargins?
The last question I try to answer when launching a new product or entering a new marketiswhetherthebusinessisprofitable.Withthefirst3stepsoftheanalysisthe reason why the customer should choose to be served and the number of times wouldprobablybeservedbyus,hasbeendefined.Onlyprofitabilitynowisbetween usandthefinalGolivedecision. IfourIdeaisnotentirelynewtotheworld,typicalindustrymarginsare aparameter to gauge what we can reasonably expect. Contribution margin for a machinery business goes anywhere between 23 % to 15%. Contribution margin for its service divisionstayaround30%60%.Apieceofequipmentshouldbesoldatnotlessthan 3 times its costs: 1 for the costs, 1 for the Tax and 1 for me. Its service can sell 5 times:1forthecosts,2forthetaxand2forme. To understand if our idea is inside typical ratios, we need our previous data about Price, and some new data about costs. We are going to check the main cost voices andhowtheywillimpactresidualmarginonthelongrun.
dontforgetcommercializationcosts
AWhicharethemaincosts?
Following the same rule of Qualifying and Quantifying, I review the main cost sourcestocheckifallhasbeenconsidered.
Variablecosts:
I like to check if the cost structure takes into account not only classic direct materials, manhours, etc. but even the costs to be sustained for warranties, scraps and reworks (cost of quality), service and trouble shooting, revision and development, licenses and access to system platforms belonging to third parties. There are a number of other checks supply chain setting may require. Environmental, Health and Safety (EHS): can heavily impact the costs and the processes. Data management: IP rights, risk of loss of data, legal implication of misuseofpartofthesupplychain.
Fixedcosts:
Here you may take into account the main organizations costs. This could be a great moment to think creatively on how to do things differently. And offer some great ideatobreakconsolidatedmisbelievesaboutcompanysconstrains.
Investments:
Any business adventure requires investments, as a marketing manager I want to be sure there is budget for product launch, promotion and communication, supporting infrastructures (read: internet portal, market places, business intelligence operations).
Synergies&Economies:
There are not only costs but even savings to take into account: synergies, partnership, commonalities can be defined now and assured to be properly leveraged. Finally the team can learn how to make things better and with a greater efficiency. An estimate of costs, savings or economies of scale can be defined and their effect plannedwithinapricingstrategy.
BDowehaveaSupplyChainstrategy?
Oncethecostsarequalifiedandquantified,Imakeachecktoseeiftheassumptions and figures are sustainable on the long run. As per Sales and orders, even for costs (resources)isinterestingtodefineamediumtermandalongtermscenario. Iwanttobesurethatwedohavetherightteamwithasufficientmixofskills.ThenI pass through figuring out material resources availability, technology needs, possible bottlenecks.Ithinktoredundanciesandpreparationforemergencysituations. Therecouldbeachanceofsavingthroughsynergieswithotherproductlines,orthe possibilitytoreducerisks:resourcescanbedeployedinphases,accordingtoamulti generationplan.
Conclusion:istheinvestmentworth?
We have answered to a lot of questions. A financial friend could just pick up the last figuresabouttheprojectedDemand,Presumedshare,possibleContributionMargin, requiredInvestmentsandcrunchacalculationoftheNetPresentValue(NPV)andof theInternalRateofReturn(IRR)tocomparethosewiththebestalternative. Thetwo:IRRandNPVareagainqualifyingandquantifyingtheattractiveness. NPV is a measure of how much more money the initiative gives in respect to invest thesamemoneyinsomeelsesideathatrewardswithanknowninterest. IRR is the average interest that our investment gives in its lifetime. It is a qualitative measure of how well the idea generates money. Note: is not a measure of how much: the investment (and the return) can return small figures, but be very effectiveinrewardingtheinvestment.ItsameasureofHowWell. IliketomakeNPVcalculationweightingthecashflowsbytheirsuccessrisk.Itforces toaskyourselfifyourorganizationisreallycapabletodeliveryourbusinesscase. Your organizations typical success rates in assuring your solution is built and sold to theCustomer,iswhatmakeyouconfidentinyournewbusiness.
takingyourorganizationsuccessrateintotheaccount
Before starting the adventure, a final check could be made. All figures are on the table, lined up along the investment periods. It could be worth to think if the cash will be there when the business plan will ask for it. So check out what happens to your cash flows in the future, and prepare to adjust the expenditure (or the borrowing)accordingly.
Part3.WHOTHEHELLMAYWANTIT?
Whothehellmaywantit?
Letstrytorecapwhatyouhavegonethroughtillnow.First,Youunderstoodthatnot all the inventions are equal. They can be categorized into two large bucks: the one thatareinsideawellidentifiabletechnologystrajectory,andtheonethatnot. Second you dived into a check list that have to be used in the first case: when you knowwhoistheCustomeryouarestrivingtoserve. Thenextstepisakindofdeathloop: You got the idea but you do not see customers at sight. But the idea seems interestingandmaybeworthtotryexploretheterritorytofindifaClientmayexist. We have to face the reality: the challenge is to invent the upwardpath, because nobodyhasmadeitbefore.Wearequiteunsureofthecorrectstrategytoadopt.We donotknowthecustomer,wedonotknowhowtocharacterizehim(segment).We do not even know how to reach the Client: we need to find or create a distribution channelthatcanbeenergizedbysellingforus. The right attitude shall be the one of the explorer. Conservative of the resources available,lightloadedinordertobereadytochangedirection,movefastforwardor retreat as needed, open to collaboration ( with the right partners ),but ready to survivesoloandfreefromconstrainsandexternalrules. Note that this attitude is different to the one used in part2. There the approach was that of a deliberate planning: where the goal is specified and you need to minimize risks of failure. Here is about discovery driven planning: search for an unknown results,withtheminimumefforts.
DowehaveahintaboutinwhichdirectiontosearchforaCustomer?
WealmosthaveadirectionwherenottolookforCustomers.Ifourinnovationisa disruptingone,probablytheCustomerbaseinsistingonthetechnologytrajectory wecomefromarenotappealedbyouroffer:itssimplynotperformingenough. Butwithoutasuggestionfordirectionwecanonlytryablindsearch.The pathfindingalgorithmsusedinsoftwaremayhelpsetfewprincipleinthistypeof search:
BlindSearch:
ablindsearchmaylooktoexploreindepthandoreinbreadth.Thismeansthatyou canbasicallychosetogoforthemostnearcustomerresemblingmove,andthen usetheinformationacquiredtotargetfromtherethenextoneandsoonuntilyou defineacustomertype/segment/populationthathastherightappeal(DepthFirst Search),orafteryoutestedthefirstresemblingcustomer,youcandecidetotry anotherpick,withoutbringingintotheaccountwhatyoulearnedfromthefirst,and sodefactoopeninganewpath.Anddosountilyouhavetestedallthenearby potentialcustomersbeforetodecidewhichonetouseasanextexplorationmove. Practicallyyouadvancebywavesinsteadofbybranches.(BreadthFirstSearch) Thereareafewvariationonthetheme:thatcanspeedupthesearchfornew markets: Depthlimitedsearch:Youcanpursueadepthfirstsearch,limitingthenumber ofstepsyoumoveforward,andthenstartingfromscratchwithadifferent resemblingcustomer,untilyoureachthemarketorthispredefinedlimit,that forcesyoutostartagain.Thisistheequivalentoflimitingthebudgetforeachin depthtrial. BeamSearch:Theequivalentoflimitingthedepthsteps,inabreadthsearchis topredefineanumberofcouldbecustomerstobetestedbeforetomoveto thenextlevel.ItscalledaBeamSearch,causeitpreselectanarchof opportunities.Thissoundsliketodecidetoexplorecouldbecustomers belongingtoanindustry. Youcanibridizethetwo,alternatingdepthandbreadthsearch,allowinga breadthsearcheveryXstepsofadepthsearch.Thisisworthtomaximizethe explorationofpromisingterritories.Modulatingthenumberofstepsonthe basisoftheinformationgatheredcanfurtherspeeduptheprocess,e.g.jumping overnonsatisfyingpocketsofcustomers. Ifwehaveaclueofthedirectioninwhichourpotentialmarketcouldlay,thenwe canusethispieceofinformationtooptimizeoursearch.
InformedSearch:
Theinformedsearchusesthepieceofinformationwehavetobetonasearch direction(thisiscalledaA*search).ThismeansthatthecouldbeCustomersnear by,aretestedlikeinabreadthfirstsearch.Butthenonlythosethatmetaspecified criteriumareusedasabaseforthenextround.Thiscouldbeawaytogoonlyfor theclientswiththebestROI.Isliketobetonlyonthemostpromisingcouldbetype ofcustomers. Alsoforinformedsearchesthereareafewvariants: Youcanbetheavyonthedirectionchosen,andinvestinordertomakeonlythe mostpromisingnextstepspursued.Thismaybeworthifcompetitorsareonour path,butmayleadonwasteofresources. Useaprioritycuetoselectthenextnodeofeachstep.Thisistheequivalentofa beamsearch,butwithadirectioninmind:usedtospareresources.
Bidirectionalsearch:
Anicethingcouldhappenifweareablenotonlytosearchbutalsotobesearched byourcouldbeCustomers.Thiswouldhelpshortenthelengthofthejourney. Thismayhappeniftheneedthecategoryatlargeoftheneedourinventioncan satisfycanbedefinedenoughtoclaimitandpromoteit. Causeabitofpromotionatleastjusttomarkthepresence,andmakethefirst couldbeCustomersappearhavetobemade.
HowwewillrecognizeourCustomer? TheknownCustomer:
TheCustomerweareusedtoservewhenweplayinaconsolidatedtechnology trajectoryhaswellestablishedbehaviorsweareusedtodealwith. IfthecompetingoffersarenotyetabletofullysatisfytheCustomerneeds,the Customeriscontinuouslysignalingthathewantsmoreperformance. Better:thereisalwaysagroupofcustomerstellingusthattheywouldlovetohave more.WeareinthiswaypulledtotowardsthehighendoftheCustomers population,and,eveniftheexperienceIexcitingwhenweareatthebeginningof theupwardrace(themajorityofthecustomersareaboveus),itbecomestricky whenthesamemajorityisbelowusandweareattractedtowardnichesalways moredemandingbutalsoalwaysgettingsmaller. Therealityisthatformostofourcustomerbasethetopofourproductlineiswell abovethetasktheyhavetoaccomplish.Aclearsymptomisasalesforcecoming backfromamarkethuntblamingthecustomerfornotbeingabletoseehowfar superiorareourproductsrespectthoseofcompetition,andthatheislookingonly toprice,treatingusasacommodity. Thismixofsignalscomingfromacustomersbasearethosewereceivewhenweplay withinamarketwehavebeenabletosize,targetandcontactalmostbyname. Whenyouareexperiencingthem,gobacktothepart2ofthisbook. HereweareinterestedtoCustomersthataresignalingthatadifferentsetof characteristicsofourproductarewhattheyreallylookforinit. Generallyisacharacteristicveryimportantforthem,whileisnoninterestingforthe otherCustomers,whilethewhatisdramaticallyimportantforthenormalcustomer, forthemisirrelevant.
Lowendcustomers:
Aclearsignforthistohappenisthatthisdifferentkindofcustomersarebuying whatistheverybottomofyourproductline,theonethatbarelydeliversthejobto bedone,andisthecheapest. Soifyouhaveanideathatneedtofindacustomer:lookforpeoplewhoaretrying tobuywiththelowestbudget,andseeifyoucanidentifywhattheyarereallytrying toaccomplish.
Noncustomers:
AnotherclassofpotentialCustomersforyourinnovationarethosethatweighta technologyfromeveryangle,theyareattractedfromit,butthentheystepback beforetobuy. Theyreallybouncebackandthereasonmayvary:theymaynotaffordthebudget, ortheydonothavetheskillsorinfrastructuretouseit.Theywouldneedthehelpof
someonesexpertiseinordertogetitupandrunning,ortheplacewheretheyhave tobringitisafarawaylocationorreallyinconvenienttoreach. Theywouldloveforsomethingmorereliable,notneedingtocallthatexpensive servicetofixiteverynowandthen,moreconvenient,sotheycanhaveitwithout movingtheworld,andmoreaffordable. Thebouncebackofthecustomerfromaconsolidatetechnologyoffer,isasignal thatheistryingtodosomethingelse.Especiallyifheisendedupwithoutbeingable toaccomplishhisjobatall,oryoucanobservedoingajobwithsomethingthatis clearlyabetterthannothingalternative. Weshouldthentrytoaskhimwhatheistryingtoaccomplish,andnoteinwhich situation,circumstancesandtimingheistryingit.
FakeCustomers:
Inoursearchfornewcustomerswemaybeendtryingtoconvincesomeonetoget ourstufftosolveorsimplifyajobtheywerenttryingtodo.Thisisawasteoftime. ThenewCustomermustbetryingtoaccomplishajobforwhichourinnovationis ofhelp.Onthecontrary:wewouldenduptryingtofightagainstmoreimportant customerspriorities.
FoundCustomers:
AssumedyouidentifiedandengagedaNewCustomer,howyouwillbesureheisthe one?Thereareafewtypicalquestionshewillaskduringyourconversations: Ifyouwillhearsomethingofthiskindfromhislips,youprobablystroked: whydoIneedthis? doesitallowsmetodomyjobbetterthenwhatihaverightnow? isitcheaper? wontbroke? whatwillittaketogettrainedonthisthing? Inthiscase,thelastcheckyouhavetoperformistoverifythattheNewCustomer rankshighinhisprioritiesthejobyouallowtoaccomplish.
Whatwemustbereadyfor?
Giventhefactthatasearchcanendwithnofind,andthatthejourneycannotbe guessedatthebeginning,wehavetoclearlydefinetheboundarieswecanembrace. Wemustbelight,andmovelean.Soourproductwillbenefitofaverysmallcost structuresothatthemarginswillbemaximizedsincethebeginning. Wecannotminglewithwastingoftime:wehavetostartearly,startsmall,but pretendearlysuccessandimmediateprofit. Weshouldmovetowardswherethemoneywillbe,andnotwherehemoneyis, readytocarryupourofferupmarket.
Weshallstartwithcapitalthatcanbepatientforgrowthandhungryforprofit:if ourinvestorsareaskingfastgrowth,mostprobablytheyaretryingtocramouridea intoanalreadyservedmarket,andnotintoanewmarket.Isacaseforpart2,notfor part3,andtoplaythereyoushouldbeanestablishedplayerinthatmarket. Weshouldselectourpartnerswithalikemindedattitude:ourChanneltomarket shouldbeincentivizedtohelpussell,andthismeansthatourinnovationshould representalsoforthemanitemwithaverygoodmargin:possiblyamarginthatis definitivelyhigheroftheirexistingportfolio. Wemustbeopentoswitchandchangeourstrategyaslongoursearchprovidesnew andbetterinformation,i.e.wemustbereadytolearnwhatworks,takingevery actionattimetounderstandthecausalityamongitandoursuccess;beveryclear andsmartinallocatingtheresources,causeoursearchwillbedeterminedbyit.
Wheretostart?
Whenventuringinanewterritorylookingforanewpopulation,ancientexplorers usedfewcodedapproachestomaketheirtripsucceedfaster.Ithinkthatsomeof theprinciplestheyusedarevalidalsoinbusiness:
Hireascout:
Ifthereisachancetohiresomeonethathasabetterterritorysknowledge,a greaterexperienceinthistypeoftrips,hasafewalreadyestablishedconnections: hirehim.Asaminimumyouwilllearnfasterbyyourmistakes.
Getanhigherpointofview:
Canyouidentifyadominantplaceoveryourmarket?Aplacefromwhichto overviewitbeforetodecidetheroute?Canyouhireaplane,asatellite?Canyouget informationfromalocalinstitutionoragency?Oraninternationalagency(not necessarilywithinyourindustry:meteosatdoanamazingjobalsotospot contaminatedareasordescribetopographyforbigprojects)
Followtheriver:
Everybodyneedswater.Sowhateverthepopulationyouaregoingtoencounter, theywillreachtheriversoonerorlater,mostofthetimetoclearlyvisiblebeverage spots.Plusriversarenaturalhighwaysintoterritorieswithoutvisibleinfrastructures. Soitmaybeworth,venturingintoanewindustry,looktotheinformation,financial, andlogisticflowswhereeverybodygatheraround.Identifytheirmeetingpointsand goforthem.
Meetresidentpopulations:
Theymaynotbeyourcustomers,buttheyareonyourprospectingmarket.Soifyou canconnectwithAssociationsontheterritory,identifytheirmarketplaces,orasa missionarygopreachorteachtothem,thiscanbeawaytofindyournextcustomer.
Lookforsmokesignals:
Smokesignalsarevisiblesignsofcivilization:youmaydonotknowthelanguage,but youcanrecognizethemfareaway.Solookingfordealsrumors,maypointyouinto therightdirection.Intheoryyoucanalsosendsmokesignalsbutyoumaysolicit theappetiteofcannibalsBettertoleavecompetitorsunawareofyourmovesuntil youhaveastrongerposition.
Beatingthebushes:
IprefertheItalianwordingoflanciareunsassoinpiccionaia(throwingastoneinto thepigeonloft)buttheconceptisthesame:ifyouspotapossiblebushthatmay hidecustomers:notnecessarilyyouhavetostrolltoitandenterit.Youcanmakea checkwithamessage,anevent,apilot,orotherkindsofprobes.
Avoidsearchingincircle:
Makingatestwithminimuminvolvement,maybeworthalsobecausewetendtobe veryfocused,endingupinlookingandnurturingonlythepossibilitiesthatarethe nearest,theonethatwerecognize,theonethatresembleusandourmind. Doingthiswerisktofallowintothetrapofthesingleuniverse:continuously searchingincirclewithinthelimitsofthesamewood,whileasavannaiswaitingfor usjustfewstepaway.
Howtobeatresistance?
Innovatingisnotaboutmakesomebodywin,itsaboutmakeeveryoneelselose. Whatever the value created by your innovation, to make it adopted by a group of potential customers means to overcome their resistance to change. The best way to makeso,isnottorewardtheirmovewithincentivesafteralltheinnovationshould already bring enough value to incentive them but to assure they understand that the adopters will achieve a better ranking among the group. It is about identifying what action to take to make the rest of them feel they are now in a lower relative rankrespecttheoneswhoalreadyhaveadoptedtheinnovation. The reaction will be a rush to jump on the Bandwagon il carro del Vincitore in fearofbeingleftbehind. A further explanation of the bandwagon effect in new products adoption (marketing) could lay in the "relative" performance of the adopters, versus the people remaining with the established solution. If the innovation creates a value addedcapabletoshifttherankingoftheadopterwithinagroupofCustomers,when the adopter improves his own ranking, he will worsen everyone else's ranking. This creates for the remainings an incentive to switch to the innovation. ( this concept is adaptedfrom"theArtofstrategyDixit,Nalebuffpg271,2)
Whattypeofresistancewewillencounter?
If we want to beat resistance we have to be able to recognize the type of resistance we could face: here is a list I built over time. (The first reader of this book getting to mewithanewkindofresistancewinsabottleofChiantiwine.) I aligned to them some of the typical sentences I got when bumping into the resistance
10Resistencestoinnovation:
1.Poorunderstandingofthevalueadded:(whydoIneedit?) 2.Isnotthewaywedothings,here: (nicechartsboynowgettowork) 3. Fearing the unknown: ( we never had any problemwe are going on very well withthingslikeusual) 4. Lack of training and reference points: ( we do not have time to listening to this stuff) 5.PreviousFailures:(Isawmanyyoungboyslikeyoubeforeyoucominghere) 6.Notinventedhere: (itcanworkatXYZ..buthereitcant) 7.Fearinglossofpriviledges: (areyoutellingmeyoudonotneedmeanymore?) 8.Lackofcontrol: (Nobodywillevergivealookatthisstuff) 9. Embarrassment: (fear to show weakness caused by real constrains. like not to be abletoaffordtheidea,orhavingmissedthetrain.) 10.Refusetheexistenceofalternativepointsofview.
FewWordsaboutinnovation:
Whatisinnovation?
Becausethisbookwantstohelpmarketinginnovation,Ispentfewtimelookingfor adefinitionofinnovationandhowwearrivetogenerateit. ThebestdefinitionIfoundisthatinnovationisanewwaytoreachagoal. Thishasaprofoundimplication: ItisnottruethatinnovationcomesbeforeCustomer.Buttheexactoppositeistrue: FirstcomesCustomer,withhisGoals,hisjobtobedone,hisappetiteforasolution tohisproblem,hiswaytomeasureajobwelldone. Thencomessolutions:innovativewaystofillagapbetweenajobwelldoneanda jobpoorlydoneornotdoneatall.Anideacapabletorespondtotheneedto performthatjob,tillnowunderperformed.Possiblytodoitwhileotherpeopleis notdoingit:so,inbusinessterms,thatparticularjobisnotonlyunderperformed, butisalsounderserved. ForthisreasonIdonotbelieveinfundingresearchforitself. FirstcomesGoals.Thencomesjobstobedone,thencomesneeds,finallyinnovation respondstothatneeds.FundingR&Dforitself,andhopingtofindaCustomerhas thesamechancestobuildbusinessofoneoftheancientexplorersdumpedinthe jungle:thereare,buttheyareamatterofluck.Youcanwinandwinbig:butthe greatestchancesarethatyougetlost.
Howtheconceptofinnovationevolvedintime:
Ittookawhiletothehumanitytodeveloptheconceptofinnovationlikewetendto usetoday.Alongthehistoryitwentfrominvention:tofindsomething,tostandfor amoreprecisemeaninginvolvingtheconceptofchangeofestablishedcustoms. Isinthisformthatthewordinnovationhasbecometosignarupturewiththe past.Notjustdetachingfromit,butmoreprofoundlydestroyingit,toachieveanew anddiversestatus. Forthelargesocialimplicationsthatthepowerofinnovationhashadinthelastfew centuries,innovationhasbeenconnotedwith2modernelements:creativityand utility.Whatwetodaymeanwiththisword,isnotonlythechangeofhabitsand
therupturewiththepast,butalsotheabilitytobecreative,combiningelementsto bringanewusefulnesstothesociety. Forthisreasonweassigntoaninventionthestatusofinnovationonlyifthe inventionbringsinanutility.Andthisiswitnessedbyachangeinthebehaviorofthe userwhowilladopttheinvention. Thereisafurtherelementoftheconceptofinnovation(andisthesubjectofthis book):becauseofourwaytopassthevalueamongthemembersofourcommunity isbasedmostlyonmarket,weassigntotheconceptofinnovationalsothe behaviortobe:marketable. (Withalltheimplicationintermsofprotectionofintellectualpropertyand feasibilityofacommercialization,thatitimplies.)
Thewayswereachinnovation:
Taking innovation to the market is difficult (ask Galileo and any marketer) and requiresagooddealofinnovativethinkingperse. We can get some help, if we are able to track the steps that leaded to the invention at the core of our innovation. A better understanding of the innovative process can help identify adopters, differentiate the offering, overcome resistances, communicatewithbetterlanguages. Ifound3preferredwaysthatleadtoinnovation:
TIME:IncrementalversusRadicalinnovation.
The first way is characterized by how the innovator embrace the direction towards the invention. He can decide to look to the past and try to improve, or look to the future and search a new pathway. Romans identified this point of origin with the GodIanus,anamethathasitsrootsin:day,morning,doorandgo. Incrementalbringsintheconcepttoimprove,reorganize,redirect, Radical brings in the concepts of imported, imitated, reshaped, invented, created, discovered,substitute,equivalent,recombination,adoption,originate,changed
SPACE:ExperimentalversusConceptualinnovation:
Wheninnovating,youcanstartfromyourrealityandshapeitinyourwayor form your idea of the reality and create it. It sounds like the fight between Galileo andAristotle:betweentheprecedenceamongthinkingandtouching. Experimentalitstypicalofseekers,peoplethatlovetry&error,Hunters Conceptualisforfinderspeoplethatliketoimagine,Fishermen
SOCIAL:CompetitiveversusCollaborativeinnovation:
When innovating, you may want to pursue it alone, avoiding the distress of the mass, or ask everybody to contribute with their best skills. Is not only a personal attitude, is much influenced by dominating culture and the moment in time. Leonardo was a pioneer, but Nash has demonstrated that cooperation can bring morevalue. Competitiveinnovationmeansmorecontrol,pioneering,butalsosolitude, Collaborativeinnovationitsopenandthereforecoordinatedorchaotic. The3dimensionsalongwhichtheinnovationcandeveloparemixable: Competitive+radical+conceptualvsCollaborative+incremental+experimental aretypical,butnotexclusivewaystoinnovate.
Thesourcesofinnovation:
When marketing innovation, there could be the need to explain the source of the original idea. Is not only a matter of ownership, it also help define some original characteristics,andhelpwideningthespacebetweenexistingsolutions.
Innovators:
Innovationsparksintotheheadofaperson.Thepersonalcharacteroftheinnovator canwellbereflectedintheinnovation,andusedtomarketit. Experimental innovators can increase the trust around the innovation: they are kind of seekers, who tend to work gradually, often taking just one faltering step at time. Theytendtodotheirbestworklaterintheircareers. Conceptualinnovatorscanbebetteracceptedamongyoungergenerations:they are finders,whopursueinnovationsbasedonboldnewideas.Theytendtodotheirbest
workwhentheyareyoung.(adaptedfrom:DavidGalenson,UniversityofChicago)
Placesofinnovation:
The place where the innovation has been found, may well impact how it is communicatedandacceptedbytheuser. Take:placeinabroadmeaning,andyougetplaceslikethese: Imitationotherpersonsorcultures Inventionotherpathwaysorgatheringpoints Discoveryotherplacesorlocations Imaginationaspirations:oursorbelongingtoothers Ingenuitythevacuum,orinkids,navepersonsorplaces Culturalchangeotherrules SocialChangeotherpriorities Organizationalchangeotherlogics Politicalinnovationotherfoundationsorcommongrounds Creativitynofoundations Technologicalchangeothertools Technologicalinnovationnewtools Commercializedinnovationonthemarket
TheinnovatorsTalents:
Finally: I have found some traits that distinguish innovative people and I want to highlightthemhere,causetheymaybeusefulwhenwelackofideas: 1)Associating: This measn to be courious, but also tolerant: capable to accept others point of view,and even solitary: cause to get the right association you need to take your time andabitofquiettothink. 2)Questioning: Japanese invented the 7 whys as a model to chase after the real reason behind a customer request. An innovator shall chase with his questions the Goal of a Csutomer. Sometime we have to swimm against the current: doing the contrary of what all other people do. And also play stupid pretending not to understand what isgoingon. 3)Observing: Finding new ideas means to be always in search of new things: we should be Explorers. And as monkeys, we should be ready to copy what others do, even if we
really do not understand why thay are doing: Experimenting is the only way to discover. Than we must be a bit of a cook: ready to put different stuf in the pot and seeifourmealcomeswithagoodtaste. 4)Socializing: Cause innovating has a lot with associating: we must be ready to socialize: we have to be interesting for others, capable to bring other people into the game, open to newcomers. 5)Exploring: And of course we should be ready to experiment new things: try hard, try loose. We should be ready to take what we have in front apart. To understand who it works, what are the components. And Test: probe, verify, if what we discover and understandisconsistentandcanbereplicatedinsimilarcircumstances. These traits have been collected from the books of prof. Christensen, that has really openawindowoverthewaywedealwithinnovation. And take advantage of the work of Mr. Ulwick on the way we should think about innovation. I hope this short list of questions may help you bring your best ideas on the market andsellthemforthevaluetheycanbringtotheCustomer. Anyfeedbackiswelcomed.Thisisaworkinprogresscollectionofpracticalhintsthat iscontinuouslyupdated.TobeinformedofnextreleasesjoinmeonLinkedin. Andhaveanicework,becausewelovetoseenewideaswalktheworld!
FlavioTosi
Ifyoulikedthisbook,tellittoyourfriends,onyourpreferredsocialnetworkandto whomyouthinkcanbehelpedbyitsreading. Do not forget to send me a note and any feedback, comment, suggestion and encouragement,Iwillreallyappreciate. Write to: flavio.tosi@businessexploration.com, I will do my best to answer promptly.
Bibliography:
HeresomeofthebooksfromwhichIstolenplentyhands:tryingtoputtheir teachingatserviceoftheinnovationsGoToMarket. UnderstandingglobalculturesGannon nexusscienceofnetworksBuchanan "theArtofstrategyDixit,Nalebuff theinnovatorsdilemmaChristensen PositioningTrout RealityinAdvertisingReeves thecopywriterhandbookBly UltimateguidetoPPCadvetsingStokes TopDogSalesSecretsJohnson Hopetheywillnotsueme
FEEDBACKS: Pleasesendanykindoffeedbackandsuggestionto: flavio.tosi@businessexploration.com Iwillreallyappreciate.
BusinessExploration
RoadmaptoMarket
aguideformarketinginnovation. The Roadmap to Market aims at collecting all the information you need, to answer to4basicquestions: 1)Istheproductappealing? 2)Istheproductaccessible? 3)Doesprojecteddemandsustaintheinvestments? 4)Doesproductleaveunitcontributionmargin? Thesequestionswillhelpdefining4elementsofaNPV(NetPresentValue)analysis: Demand,Share,ContributionMarginandRisklevel. WeareinBusiness,andyoushouldagreethatonlyReturnsjustifyInvestments. This ebook will look into each question, to understand if your idea has market space. And the assessment will not be just some figures on a spreadsheet, but the summaryofagotomarketstrategy,readytobedeployedbyyourorganization. Abouttheauthor: Since2009,FlavioTosihasbeenhelpingindependentsinnovatorstargetingtheOil& Gas,Energy,Aerospaceindustriestodevelopthepotentialoftheirbusinessideas. When they feel concerned about the risks and the best approach to use for launching a new product or service, or starting a new commercial initiative, he complements their gut and instinct bringing on the table latest methodologies and provenbestpractices. For 12 years he has been a manager of General Electric and previously for 2 years, an engineer in the R&D. Flavio was part of the team that brought to the Oil & Gas market some of the most fascinating technologies of the last decades, gaining a deep understanding of New Product Introduction, Business Process Reengineering andProjectManagementmethodologies. And became passionate of the challenges offered by this industry, having fun discoveringnewsolutionsandideasforhisClients. Youcanfindsomeofthemhere:www.businessexploration.com, oryoucancallFlavioat:+393496482225forapreliminarytalk, withoutanyobligation.
2012www.businessexploration.comallrightsreserved Ing.FlavioTosi,AlboIngg.Firenzen3581via8marzo,22Castelfiorentino50051Firenze

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Whenyouarestillontheperformancetrajectory,youmaystartnoticethatyour customersarestartingtobuytheentrylevelproductsofyourproductrange,orof themarketproductsrange.Allofthecompetitorsarestartedtobetreatedalike. Pricebecomesaninterestinggaugeofchoice. Isinthissituationthatathreatsmaterialize:

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