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Historically, marketing and sales were considered more arts than sciences. Companies resisted applying hard measures because it was difficult to measure cause and effect. How could you isolate one marketing or sales initiative and attribute business success to it? As a result, the measurement of market strategy effectiveness was lost in the "Four P's" of marketing.
For companies struggling in their marketplace, the issue is interpretation. How can an effectiveness measure be turned into action? Even for market leaders, the measurement can be a source of frustration. The issue here is one of selection of the right metric--or cause and effect--or the most appropriate metric to help keep the company out front in the market.
Smart Business asked Carl Cullotta, Vice President and Principal of Frank Lynn Associates, to outline how manufacturers and service providers can be more formulaic in approach to the problem. Cullotta suggests the PPH Formula as a diagnostic tool to first identify what limits market strategy effectiveness, and then implement discrete changes to improve it and measure the results.
What is the PPH Formula, and how does it provide a measure of strategy effectiveness?
PPH is a formula that breaks market share into measurable components of product/service coverage (P), sales presence (P) and hit rate (H). Factored together, these three variables equate to market share (PxPxH=MS). By breaking your market share into these components, the limiting factors to strategy effectiveness can be quickly identified. And since it is a mathematical formula, the model provides a basis to measure the cost/benefit to any actions the marketer may take to try to boost strategy effectiveness.
What is product/service coverage?
It is a measure of the degree to which your product/service offering is considered a viable alternative to the customer. Assessing product/service coverage begins with understanding what the end user is buying--including physical product and the service/support provided around it. Product/service coverage determines whether your offering is viable from a form/fit/function perspective.
It should also include a look at price points. Consider the "good/better/best" product positioning. Customers focused on a "best" offering will rarely consider a "good" product a viable alternative and vice versa. So if your product is 15 percent to 20 percent higher or lower than the alternatives, it calls into question whether you have effective product coverage for that customer segment.
What is sales presence?
Sales presence is a measure of how often the customer considers your offering at the time of making a purchase. Sales presence has several contributing factors.
Geography - Do you have appropriate sales/channel presence in the location where brand/source decisions are made?
Account - If present in the geography, does your sales organization and/or channel partner have a relationship with the account? Within the account, do you have access to the key decision-makers and decision-influencers?
Decision presence - Even if you have generated revenue with this account in the past, are you involved in the current purchase decision? Or is the account awarding business for which you are not allowed to compete?
Our experience suggests that all three are required to assure you are really being considered for purchase by the customer.
What is the hit rate?
The hit rate measures how often the sale is won. It is a reflection of how well your product/service offering and support align to the decision variables used by your target customer. It is a result of several factors considered part of the traditional marketing mix--brand preference, price preference, ease to do business with, product/service bundle, technical support, product availability and the manufacturer's and channel partner's reputation.
How does the PPH Formula help?
It allows the marketer to define strategy at an actionable level. Product management can gain insights from the product/service coverage analysis. Sales management can gain direction from the sales presence variable. And the marketing organization generates guidance to its resource allocation from the hit rate assessment.
Limiting the effectiveness assessment to a territory and/or market segment basis allows for a change in your marketing approach away from the traditional one size-fits-all strategy to an approach that employs individual strategies that are highly focused on targeted segments. The PPH analysis described in this article will help you strategize how to achieve measurable improvement in individual segments and measure your effectiveness during strategy implementation.
Carl Cullotta, Vice President and Principal of Frank Lynn & Associates directs the firm?s building and construction practice group. He has managed numerous engagements with global companies during his 22 years with the firm.
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In today's market, competition is fierce. Losing sales and market share to competitors is unacceptable. Over the years, I have observed that high-performance manufacturers and service providers consistently execute several key tactics that differentiate them and ensure their presence and market share despite changing market dynamics.
In this article, I have outlined ten of the most important tactics that winning marketers routinely do to maintain their lead. Let these ten tactics serve as a checklist to conduct a self audit of the effectiveness of your sales channel strategy.
Capture and Use Detailed Market Information
A broad and deep understanding of the market is critical to the creation of a sustainable market position. Winning marketers have developed a "map" of their market--including the most actionable segment definition, size/outlook, profit potential, buying behaviors and decision processes, needs/expectations, competitive dynamics and sourcing preferences. The market map provides an objective context for internal discussions regarding strategy alternatives and resource allocation decisions.
Accelerate the Planning Process
Markets are changing faster than ever before and so must your planning process. You cannot get caught in the never-ending cycle of analysis/planning that is characteristic of many organizations today. My view of the planning process of the future is one that is "decision centric" rather than "analysis centric." The planning process should be designed to use the existing body of knowledge of your organization. Senior managers should be more involved, and involved earlier, in your annual planning process.
Rather than a management meeting to culminate a lengthy analysis conducted by several layers of the organization, the plan should be initiated by senior management. Use the senior management meeting to kick-off the planning process and define the strategy, then let the organization validate the assumptions. The result will be a quicker developed plan, much more reflective of current market reality, and one in which senior managers are much more invested.
Streamline Your Organization for Speed and Flexibility
Effective market management will require speed in decision making and flexibility in action. An organizational structure that supports this will consolidate channel management under one group within the manufacturer's organization. A single point of contact will lend efficiency to the marketer's channel relationships. In addition, consolidating all products, programs, and channel relationships will serve to enhance the manufacturer's market power.
Regain the Power of Your Brand
One of the most vital tools the manufacturer has to retain customer relationships and power in the marketplace is the brand. Therefore, manufacturers will be well served to reinvest in establishing brand value. This will be done by clearly articulating the value your brand stands for and consistently delivering against this value. Brand value will be a powerful tool to secure your market presence. Many channel partners will see the brand value as a deterrent, thus keeping them from switching allegiance to your competitor. Others will see the brand as a clear benefit, causing them to seek you out. The result in either case is more effective "shelf space" in the market.
Win at the Local Level
A local market management philosophy may be the single biggest factor that separates the winners today. Customers have a wider range of channel choices than ever before. Information is more widely available. Customer segments are using these choices and information to evolve their buying behaviors in different ways and at different rates. The result is that the "map" of local markets is likely to vary widely, and the most appropriate channel strategy is likely to vary significantly from market to market.
The successful marketer will recognize these differences. Local market managers will be given the autonomy and flexibility to "customize" the local channel strategy to local conditions. Corporate policies serve as a set of guidelines and programs serve as a menu from which the local manager designs the unique channel mix to optimize share and profitability. Winning marketers have recognized that it often requires different skill sets and compensation for the local market manager operating under this construct versus a traditional sales capacity.
Create Multi-channel Strategies
The channel spectrum that has evolved in most markets is characterized by a wide spectrum of choices, ranging from highly efficient, logistics-oriented channels to highly focused, service-oriented businesses. Few manufacturers can assure optimum market presence by selling via only a single channel type. Market share leaders will include a variety of channels in their mix--and provide a differentiated offering to/through the channel to reflect the unique characteristics, needs, and market value of each channel type utilized.
Make Smart Choices in Channel Selection
One of the key changes occurring in most channel classes is consolidation. It is rare to find the true independent, "mom and pop" operator today. (Even when you do, that mom and pop is often part of a buying group or cooperative to help boost its market power and buying leverage.) Given this consolidation, the manufacturer runs a higher risk than ever before associated with a poor choice of channel partner. There are fewer alternatives to offer you market presence and share if your existing relationship does not pan out.
Winning channel managers address this risk through a more considered approach to channel selection. More time is spent up front defining the ideal characteristics of a channel partner. These characteristics usually include financial and management capabilities to support growth, sales/marketing capability to support manufacturer programs/goals, and operations considerations to help drive efficiency. Potential partners are put through a more rigorous screening process against these characteristics, resulting in fewer mistakes. The partners that are selected participate in a more rigorous planning and review process to help the channel show continuous improvement when measured against the ideal template.
Tackle Channel Conflict Management Strategically
In an environment where multiple channel strategies are the norm, conflict management should be considered an integral part of the strategy planning process. A fair and impartial approach to channel management helps control conflict through a variety of "ground rules"--around access to brand, product authorization, and economics that reflect the role of the channel. Additionally, clear policies and consistent enforcement around issues of authorization, channel standing, management issues and termination provide the most level "playing field" for your channel partners, allowing for effective conflict management.
Use Channel Pricing to Manage Market Complexity
Too often today, manufacturers still base their channel pricing on volume. This approach fails frequently in the environment where the manufacturer utilizes multiple channels with significantly differing business models. The volume-based approach invariably favors the logistics-oriented channel over the service-based models. This leads to destructive channel conflict for the manufacturer by putting relationships with the service-based channel model. Compounding this risk to the manufacturer is the fact that we find service-oriented channels are usually more effective in "creating" customers for the manufacturer, rather than just "harvesting" existing customers.
A more pragmatic approach to channel pricing is a value-based compensation model. This approach places a value on each of the functions the channel performs for the manufacturer, allowing your overall payments to the channel to more directly represent their role in your go-to-market strategy.
Create Programs for Strategic Advantage
The most successful manufacturers take the time to assure their programs offered to/through the channel partners are linked to market dynamics. These programs (which often represent the largest line items in the sales/marketing budget) are carefully designed within the context of the market "map." What are the priority decision factors used by the target customer and how are programs crafted against these? What is the true willingness/capability of the channel partner to create customers and service existing customers? Do the channel programs reflect these attitudes and capabilities? The manufacturer who has put their market programs to these tests can expect a much higher return on their resource investment.
Summary
Given the high number of "degrees of freedom" that exist across customers, markets, channels, and manufacturers' objectives, it is unreasonable to suggest there is only one success formula to assure optimum market presence and share. However, we find the issues discussed here are consistently addressed by market leaders in both the design and management of their channel strategies. You should find this is an effective checklist to examine your channel strategy.
Carl Cullotta, Vice President and Principal of Frank Lynn & Associates directs the firm?s building and construction practice group. He has managed numerous engagements with global companies during his 22 years with the firm.
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