How to Dominate Your Local Market

Transcription

How to Dominate
Your Local Market
A New Science of Successful Selling
How to multiply sales results against strong
competition.
Business Development Manual
The Peak Performance Series.
Greg Roworth
© 2012 Business Success Systems
CONTENTS
CONTENTS ..................................................................................................................................2
1.
INTRODUCTION..................................................................................................................3
2.
THE OLD SALES MODEL V. THE NEW .................................................................................6
3.
YOUR PRICE ..................................................................................................................... 11
4.
YOUR POSITION .............................................................................................................. 20
5.
YOUR PROMOTION ......................................................................................................... 26
CONCLUSION ........................................................................................................................... 28
REFERENCES ............................................................................................................................ 30
Business Success Systems
www.businesssuccesssystems.com.au
2
1. INTRODUCTION
The purpose of this manual is to help owners of small and medium sized businesses to
multiply their sales results by developing a better approach to the way they “do business” in
order to dominate their local market. It applies mainly to the types of businesses that
generally have to present a quotation or proposal, before they make a sale. The following
sections of this manual are not theory. They are based on a proven approach to winning
competitive quotes. The manual includes practical examples that are taken from real life
situations and real businesses that have achieved incredible results. Along with these
examples are detailed descriptions of how to develop the same types of techniques into any
business. The manual is filled with tips and tools which can be adapted to suit various
applications, but they are especially relevant in the situation where the market is
competitive.
If your business wins sales through quotations or proposals to prospective customers,
implementing these proven processes and techniques is sure to greatly increase your
success rates, almost over night. I hope you take the time to work through the exercises in
this manual and develop a competitive advantage that will leave your competitors mystified
about why you are getting so much of the work that they once used to get.
In my experience of over thirty years in business, I have found that most small businesses
and their owners face competitive pressures that limit their ability to make the sort of
profits that they deserve, in relation to the hours they put in. There have been some good
times for business when it has been easier to make money. However the conditions that
exist in business today mean that you have to develop a competitive edge to get ahead. If
you are struggling with competitive pressures, my experience tells me that you are not
alone. I have interviewed close to a thousand owners of small and medium businesses over
the last twenty years and have discovered that most of them operate very much the same
way. They tend to have very good skills and experience in the technical aspects of their
trade or profession. That means that if the person is a plumber, he spends most of his time
developing his skills in plumbing or keeping up with trends in the plumbing industry. If she is
an interior decorator, she is a good decorator and works hard at staying in touch with what
is in vogue in the industry. However, in my experience, very few business owners spend
much time in developing their management skills or working on improving their sales and
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marketing strategies and techniques. This is what keeps them stuck in this competitive
situation where there is only one competitive strategy. They hope that their quote is the
lowest price so that the customer chooses them. What tends to happen is that the available
work is shared around amongst the competitors in each industry, depending on who is busy
or not. Price levels tend to fluctuate depending on the success of the previous few quotes.
It is difficult to get enough work to make a reasonable income. It seems even more difficult
to generate a consistent flow of profitable sales and to maintain sales growth over an
extended period.
The goal of this manual is to help you develop a marketing approach that gives your business
a real point of difference from your competitors, breaking you out of the price sensitive
competitive rat race, which keeps your sales and profit at minimal levels. The sales and
marketing concepts set out for you in this manual will make you stand out from the rest of
your competitors. But this will only happen if you use the stratetgies and techniques you
will be given.
This is the most important point you will read in this manual. Our marketing tips and tools
WILL help you multiply your sales results and greatly increase your profits, ONLY IF you DO
the exercises in this manual and PUT THE STRATEGIES TO WORK in your business. My
experience tells me that most small business owners don’t change their approach even
when they are offered a better way, because they are “too busy” to make the changes
necessary. This is like saying that you don’t have the time to stop digging with your spade
when someone comes to show you how the job could be done with a mechanical trench
digger. The tips, tools and techniques detailed in this manual describe a new way of selling.
The old sales model developed and used through the last century is now outmoded and
ineffective. However many sales people and businesses still use this outmoded approach
and consequently struggle to achieve satisfactory results. Only a few businesses have
discovered the secrets to sales success in this century. These secrets are based on simple
and fundamental principles, but they work incredibly well. The most successful businesses
have discovered these principals and use them all. The reason they are not in common use
is because of the above syndrome. Most of your competitors have not taken the time to
learn these techniques and put them to work in their business. This is why you can change
your results dramatically.
If you work on improving your sales and marketing approach by learning and using these
techniques, you will jump out of the competitive pack that is squabbling over the “leftBusiness Success Systems
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overs,” the work that the most successful businesses are not interested in bidding for. Your
business will look different, feel different and be different. Your new sales inquiries will
grow, your “word of mouth” inquiries will swell, your success rates will multiply and your
profit margins will soar. In reality, the amount of time and effort you need to put in to make
these changes is such a small investment compared to the amazing impact that they will
have on your results. Consider the following numbers. Even if you are doing quite well and
have a success rate of two sales for every five quotes, just improving that success rate to
three in five will increase your sales results by 50%. What do you think that might do to your
profits? Chances are your profit will increase much more than 50%, depending on the level
of your overhead costs. We will go into more detail about these numbers in the section
covering Your Price.
In the following sections of this manual we will study the decision making process that all
buyers go through when they are considering a purchase and why the new sales model
works so much more effectively than the old. We will see what emotional needs buyers must
satisfy to feel comfortable to make a decision and then to stay happy with the decision they
have made. Then we will show you what to do to influence this decision making process.
This will relate to each aspect of your sales and marketing processes, including basic
management decisions about the type of product or service you offer and the position you
want to take in the market place. We will also go into the reasoning behind your decisions
regarding your price levels, your promotion and advertising methods, and your sales
presentation, based on how to satisfy the buyers’ needs. Then we will show you in detail,
actual the approach successful businesses have used to maximise the impact they have had
in each of these areas and help you work through your approach to put these strategies into
operation in your business to multiply your sales results and magnify your profits.
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2. THE OLD SALES MODEL V. THE NEW
The old model of selling that emerged through the 1900’s was fundamentally flawed. The
fact that selling has become an area of employment that is often regarded with very little
respect, particularly in some areas, attests to the fact that the approach to selling we have
become familiar with is not “user friendly.” Some characterizations, such as the used car
salesman, are used as descriptors of the sleaziest and most unscrupulous of characters.
They are lumped into the same basket as con artists and scammers. Why is it that the noble
art of selling came to achieve such a bad reputation?
The selling process of the 1900’s was based upon an adversarial approach. That is, a win –
lose approach. A sales transaction was a competition, pitting the sales person against the
buyer. It was frequently the sales person’s job to overpower, outwit, persuade, convince
and cajole the often unwary buyer into submission where he or she was ready to part with
hard earned money in exchange for goods of questionable value. This scenario came about
because of the circumstances of the twentieth century, where two world wars interspersed
by the Great Depression created an environment of scarcity. After World War II there was a
great demand for goods and a lack of production, which meant there was an enormous
vacuum to fill. This created a situation where the seller had the power. Fuelled by the rapid
development of new products during this time, the sellers also had greater knowledge than
buyers. As production capacity grew, sales people were employed to sell as much as they
could to a market where there was limited knowledge about the features and benefits of the
new products. As the saying goes, “Power corrupts,” and the power of sellers in these
circumstances often led to situations where buyers were taken advantage of and sellers did
their best to maximise their advantage – to the disadvantage of buyers. Towards the end of
the century, the buyers began to fight back, with the development of consumer advocacy
groups and the introduction of consumer protection legislation to outlaw the unscrupulous
sales practices. However, this just meant that sales practices were toned down to comply
with the laws. The same sales methods however are still prevalent and apart from the more
progressive companies, the same flawed approach is still used, which typically results in
unnecessary resistance in the sales process.
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Sales resistance is a fact of life for most sales people. We encounter sales resistance in five
specific areas. In any sales transaction we must negotiate these five barriers. They can be
real and permanent, which means no sale. Or they may merely represent perceptions that
the prospect currently entertains through lack of knowledge. These perceptions can be
changed through the sales process resulting in a sale.
The 5 barriers are:
1. No need: the prospect is not aware of any problem and how the type of product or
service you provide can be of benefit.
2. No help: the prospect accepts the problem, but does not see why your particular
product or service is the best solution.
3. No hurry: the prospect is not aware of any urgency in solving the problem.
4. No trust: the prospect is not sure that you or your company are the right people to
deal with.
5. No money: the prospect is not capable of funding the purchase.
The key to eliminating sales resistance is to quickly identify whether these barriers are real
and permanent or if they are only a temporary condition. Selling is often made unnecessarily
difficult by the method used by the sales person, especially when they use the old "push"
selling model. The traditional "push" method of selling actually increases resistance because
it often does not recognize these barriers in the sales transaction. With the push approach,
sales people waste much time and effort either trying to make a sale where these barriers
are permanent or by using methods which increase resistance when the barriers are
temporary. There is a better way - the pull (attraction) model.
The Push Sales Model
The steps of the old model look like this:
Advertise product
presentation
proposal
overcome objections
close sale.
In the push model you advertise your product (or service) to get a particular response that
provides the opportunity for a sales presentation. During the presentation, you detail the
features of your product and tell the customer the price and payment terms. Then you ask
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them to buy. Usually they will have some resistance or hesitation about going ahead (sales
people call these "objections"). Then comes a negotiation phase when you try to overcome
objections and "close" the sale. The prospect either says yes to your product after a bit of a
battle, or tries to get you to reduce your price to the point where you don't make a profit, or
says they need to think about it. Rarely do they actually say, "No thanks."
A number of factors make this model ineffective:
1. We suffer from information overload. It is estimated that on average we receive
approximately 3,000 marketing messages daily. With so much coming at us, people are
screening out advertising, making it much harder to get your message through.
2. Today's market is more knowledgeable and there is greater choice than in the past. There
is an inbuilt resistance because the customer will want to research other options before
accepting your proposal.
3. The "push" approach creates resistance. I remember from school, one of Newton's laws
was "every action creates an equal and opposite reaction." This is true in selling. When we
push the reaction is resistance.
4. This resistance is even greater because people are more suspicious of sales people these
days. The consequence of unethical advertising and sales practices of the past is that the
market is now very wary of what advertisers and sales people say.
5. The push approach is product focused. Unfortunately, people are generally not interested
in your product until they discover a need your product will satisfy. Salespeople who push
the product make hard work of selling.
6. In the push approach sales people spend a lot of time trying to sell to people who have
not discovered a need. They try to sell to anyone who could possibly be a prospect. This
makes the job of selling very difficult and increases the level of resistance that sales people
face every day.
The Attraction Model
With the pull or attraction model, there is very little need to "sell," as selling is normally
understood. In the attraction approach, the focus is on the customer rather than the
product. This approach recognizes that no one is interested in your product until they have
identified a need. The main focus of marketing is to first highlight and identify needs, rather
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than inform about products. Most of the sales conversation is about the customer and their
circumstances. Your job as a sales person is to identify a need, before you present your
solution. You also view the customer as a long term client of your business, rather than a
sales prospect who may buy today and never come back.
There are a number of clear steps in the attraction model which eliminate much of the
resistance that the push approach suffers. The model looks like this:
Lead generation advertising identifying prospects with need
finding
solution clarification
agreement
build credibility
fact
open ongoing relationship.
1. Rather than marketing to everyone, we gain permission to concentrate our marketing on
the people who are most likely to buy - those who need our product. It is more effective to
break the sales process down into two distinct steps, lead generation and lead conversion.
Our first aim in lead generation, is to eliminate non-qualified buyers from our attention. The
push model tries to sell to everybody. This is expensive and wasteful. Lead generation
focuses on finding prospects with a need and gets them to indicate they want to find a
solution.
2. Our "lead generation" offer needs to educate the prospect about the benefits of our
product and show how the product solves the problem or meets the need. This approach
means that prospects can find out more about a possible solution with very low
commitment. This breaks down resistance. A free sample or trial will help, as will free
information about your solution. The valuable information you provide will also build
credibility and help establish trust. It also eliminates prospects who do not have capacity to
fund a purchase.
3. After attracting qualified leads, we can concentrate on converting them into customers.
The fact finding process is the critical element of this model. The temptation when someone
responds to our lead generation advertising is to try to "sell" them. We need to resist this
urge. We need to do some fact finding, some probing of the customer's circumstances to
find out the extent of the customer's problem. Because of our focus on the customer at this
point, there is very little resistance. The customer feels our genuine care to find the best
solution for them. This attention to the customer also builds credibility and trust. They don't
feel like they are "being sold." They feel respected and cared for.
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4. When the exact nature of the problem is identified, the sales person, who is now regarded
as a knowledgeable adviser, is able to make a proposal about the best solution to the
customer's problem. If you have done your marketing well, the solution will be your product.
5. Rather than objections, if the customer has any hesitation at this point, it is normally just
in the area of needing clarification of something to do with the product or payment terms,
warranties etc. These queries are not difficult to answer. All you need to do is restate the
details and benefits relating to the query and check that the customer understands what
that means. With the attraction model you don't need 50 different closing techniques to
trick the customer into saying yes. All you need do is to check that your customer agrees that
the solution you have proposed is acceptable and ask them how they want to pay.
6. In the attraction model, the focus is not on selling, or closing sales. The focus is on
creating customers and opening a relationship that provides ongoing mutual benefits to
both parties. This recognizes that a customer has a long term value to your business, both
through the initial sale and from additional sales to that customer as well as from the
referrals that satisfied customer provides.
Which sales model does your business use? If you are struggling, finding the market is
resistant, why not develop a sales model based on the attraction approach. The attraction
approach makes life easier for customers and sales people, because it is a partnership
approach rather than a confrontational approach. Sales resistance is minimized, you spend
more time working with interested, motivated buyers than difficult customers. You make
more sales in less time with less stress. Plus, you put yourself in the position where you
don’t have to continually sharpen your pencil when it comes to your price.
Exercise
Work out what customers needs your products or services solve and how you can present
your solutions in a way that doesn't mention your product or service until the very end of
the process.
Determine what your customer needs to know to be able to see your product or service as
the best solution to their problem and work out how you can present a persuasive argument
that positions your product or service as by far the best option.
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3. YOUR PRICE
If our attraction marketing process is effective, we are often invited by people predisposed
to work with us to provide a quote.
What do you think about when you are asked to give a quote? Many of us automatically
think that what we need to give the prospective customer is a price. While this is true, it is
only part of the story.
Obviously there must also be a quotation of the product
specifications or description of the services provided. There is also a quotation of the terms
and conditions of acceptance and performance of the contract.
Why then do we place so much emphasis on the price? The problem is that we are often in
the situation of not being able to create sufficient difference in value, from the customers’
perspective, between the specifications of our product and service offering and our terms
compared to what our competitors are offering. The price then becomes the only point of
difference that the customer is able to use to make a decision. This focus on price is often
the result of the business owner having a mostly technical background when it comes to the
product or service they are selling. Most business owners are experts in regard to their
product or service. They know every feature inside out. However, their technical focus
tends to alienate them and their product from the customer.
For example, have you ever had the experience of buying a computer? Did the sales person
tell you how much RAM the computer had, and how big the hard disk was, what speed
processor, what size monitor screen, etc? I guess, at least in the computer industry, size
does matter. The sales person will invariably try to impress you with these features. But
what does it all mean? All of these features must be important, otherwise the salesperson
wouldn’t spend so much time talking about them.
Unfortunately I, like many others, don’t know enough about the technical aspects of
computers to know how these features contribute to my usage of the computer after I own
it. That is, what are the benefits of faster speed, more RAM, etc? Because the salesperson
doesn’t explain the benefits, I am forced to guess at which machine is better for me.
Because it is all too confusing, I end up buying the computer that is cheaper. But am I really
happy with what I have bought? It is not that I wanted the cheapest computer, but I have
bought it because no sales person was able to sufficiently sell me the benefits that justified a
decision to pay more. But, like most people, I would have paid more if I saw the benefit.
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Instead of trying to improve marketing and selling skills, most sales people and business
owners, look at a situation like this and blame the price factor as the reason they lost the
sale. Most times, this is not the real reason. But for the moment, let’s stay with the price
factor to assess the value of competing on that level.
When my clients and other business owners complain to me about how competitive the
market place is, they invariably blame their competitors for quoting cheap prices and ruining
the market. They state that their competitors can’t possibly be making a profit at the sort of
prices they are quoting. They are mystified about how they can compete. They blame the
customers for not being able to tell the difference between the quality of their offer and the
junk that their competitors are offering. They wonder if they can win back a share of the
market by cutting their prices to compete. Quite rightly, they wonder what that strategy will
do to their profitability.
These are all natural and common concerns for business owners.
However, in my
experience in the markets dominated by small to medium sized businesses in competition,
NOBODY WINS A PRICE WAR. Some things are obvious, but worth stating. Lowering prices
lowers profit margins. If everyone lowers their prices and market share settles back to
original levels, everyone makes lower profits. One competitor may gain some market share
for a short time by reducing price levels. But how long does it take before competitors
respond and defend their market position?
This is the major point of this manual. How do you defend and improve your business sales
and profits in a competitive price market? I will show you why competing on price alone is a
“no win” strategy. I will show you that the price is not the only consideration customers
have when making a decision, nor is it even the most important consideration. I can imagine
some arguments arising at this point, because the price often seems like it IS the only
consideration. I want to show you that the price consideration is only important when we
haven’t done a good job of marketing and selling the other aspects of our product or service
that our customers want. What we have to do is to reduce the importance of the price
decision by making that decision only one of many that they have to make. We can achieve
this by focusing our marketing on magnifying the POINTS OF DIFFERENCE between our
offering and our competitors’ offerings, by finding the reasons customers buy and what
needs they must have fulfilled.
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Before we go on, let me make one concession. I want to make it clear that I am not talking
about winning every quote you present from now on. The tips and tools I present will not
provide an infallible 100% success strategy. However, what will happen, if you have ever
made one of the complaints stated above, or suffer from those pressures, is that if you use
these tools, your success rate will dramatically increase. As stated earlier, if your current
strike rate is two sales out of every five quotes (which is quite common), you could improve
your strike rate to three out of five and increase your sales by 50% without changing
anything else. Even if you improve from one in three to two in five, your total sales would
improve by more than 20% without spending one cent more on advertising.
What would a 20% increase in sales mean to your net profit over one year? I’ll guarantee
you that your profit will increase by much more than 20%. Let’s look at this example, then
you do the exercise yourself, using your own figures from your business.
Let’s take a small business, with a sales turnover of say, $1 million. Let’s also assume that
this business has a Gross Profit rate of 50%, that is its Cost of Sales is 50%. Let’s also say that
the business has other Variable Costs (expenses that vary with the volume of sales, such as
casual wages, overtime, etc) of 20% and that fixed overhead costs are $200,000. These
figures are fairly common for a business with 5 or 6 employees. Let’s put these figures into a
Profit & Loss Statement.
OLD PROFIT & LOSS STAMENT
Sales Income
$1,000,000
Less cost of Sales
500,000
Gross Profit
500,000
Less Expenses
Variable costs
200,000
Fixed costs
200,000
Total Expenses
400,000
__________
Net Profit
$100,000
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We see that this business has achieved a net profit of $100,000. What happens to the profit
if we increase sales by 20%, just by improving our strike rate from one sale in three quotes
to two in five? Sales increase by 20% to $1.2 million. All other ratios remain the same. Let’s
see the Profit & Loss Statement.
NEW PROFIT & LOSS STATEMENT
Sales Income
$1,200,000
Less cost of Sales
600,000
Gross Profit
600,000
Less Expenses
Variable costs
240,000
Fixed costs
200,000
Total Expenses
440,000
Net Profit
$160,000
The Result. An increase of 20% in sales has translated into an increase of $60,000 in net
profit, or an increase of 60% in net profit.
Try the exercise with your figures and see what sort of result you could achieve. Don’t worry
too much about trying to work out what your variable costs are if your accountant hasn’t
separated those figures for you. Assuming all of your expenses below the Gross Profit line
are fixed will give you a reasonable approximation. Using your last year’s profit & loss
statement, fill in the blanks on this chart and then see what a 20% improvement in sales
would mean.
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YOUR PROFIT & LOSS STATEMENT
IMPROVEMENT
Sales Income
……………….
X 120% ……………….
Less Cost of Sales
………………. X 120% ……………….
Gross Profit
……………….
Less Expenses
Variable Costs
………………. X 120% ………………
Fixed Costs
……………….
………………
Total Expenses
……………….
………………
Net Profit
……………….
………………
……………….
Less Original Profit ……………
Profit Improvement ……………
Percentage Improvement …………
(Improvement / Original x 100)
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How did you go? I’ll bet the improvement was high enough to get your attention. What I
am trying to show through this exercise is that improving your success rate in converting
quotes to sales, even just a bit, can have quite a dramatic impact on the bottom line. That is,
providing you don’t do anything silly like reducing your prices and profit margins to achieve
sales growth.
Before we move onto the reasons people buy and show you what needs to be done to
satisfy their needs, let me show you clearly the effects of changing price levels and allow me
to make a case for raising your prices rather than dropping them. What we have seen
before is that when there is competitive pressure the business person’s reflex action is to
drop prices to try to increase sales. What I am going to propose is that it is much easier to
maintain profitability by INCREASING prices than to drop them.
Let’s look at two scenarios. First, what happens when we reduce our prices? The most
obvious result is that on each sale our profit margin is reduced. Our costs to produce our
service or product and deliver it to the customer do not change. Therefore to achieve the
same net profit as before, we must increase the volume of sales. That is, we have to work
harder to achieve the same result. Even if we have a distinct cost advantage over our
competitors (and this is highly unlikely for most small to medium size businesses) a reduced
price strategy is only sustainable if we can drive some of our competitors out of the market
to reduce competition in the future. Then we can put our prices back even higher to
increase our profit margins. In most markets, all this strategy achieves is lower profits for
everyone. In my experience, it has usually been the low price competitor that succumbs first
and goes out of business before the competitors that it was trying to drive out.
Usually we only contemplate dropping our prices in response to a competitor dropping their
prices. Let’s see how much harder we have to work and how many more sales we have to
make to achieve the same net profit as before. This all depends upon our original profit
margin and the rate of the price reduction. Let’s put the variables in a table to discover the
percentage increase in sales required to compensate for a particular price reduction.
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If your present gross profit margin is
And you
reduce
your
price by
10%
15% 20% 25% 30% 35% 40% 45% 50% 55%
To produce the same profit your sales volume must increase by:
60%
2%
25%
15%
11%
9%
7%
6%
5%
5%
4%
4%
3%
4%
67%
36%
25%
19%
15%
13%
11%
10%
9%
8%
7%
6% 150%
67%
43%
32%
25%
21%
18%
15%
14%
12%
11%
8% 400% 114%
67%
47%
36%
30%
25%
22%
19%
17%
15%
10%
200% 100%
67%
50%
40%
33%
29%
25%
22%
20%
12%
400% 150%
92%
67%
52%
43%
36%
32%
28%
25%
14%
233% 127%
88%
67%
54%
45%
39%
34%
30%
16%
400% 178% 114%
84%
67%
55%
47%
41%
36%
18%
900% 257% 150% 106%
82%
67%
56%
49%
43%
400% 200% 133% 100%
80%
67%
57%
50%
500% 250% 167% 125% 100%
83%
71%
20%
25%
30%
600% 300% 200% 150% 120% 100%
What does this table tell us? The most important point we can see is that if we drop our
prices by any significant amount, i.e. 10% or more, we have to sell at least 20% more to
make the same profit (if we have a profit margin of 60%). For a business achieving the sales
and profit levels we used in our example above (i.e. sales of $1 million and a gross profit of
50%, a 10% reduction in prices would mean that sales would need to increase by 25% to
$1.25 million to achieve the same profit. If your current profit margin is lower than 50%
then you would need to increase sales volume by even greater amounts to achieve the same
profit.
This scenario suggests to me that even if your competitor starts a price cutting war, you
would be far better off to hold the line with your current pricing level to minimise your
losses, if you do nothing else. It is far more likely that you will lose fewer sales than you
would need to gain if you try to match your competitor’s price cuts.
But this is only one side of the story. What would happen if you actually increase your
prices? How many sales could you afford to lose before your overall profit slipped below
17
your current levels? Again, the answer depends upon your current margins and the amount
of your price increase. Let’s put this information into another table.
If your present margin is
And you
increase
your
price by:
10%
15%
20% 25% 30% 35% 40% 45% 50% 55%
To produce the same profit result your sales may reduce by:
60%
2%
17%
12%
9%
7%
6%
5%
5%
4%
4%
4%
3%
4%
29%
21%
17%
14%
12%
10%
9%
8%
7%
7%
6%
6%
38%
29%
23%
19%
17%
15%
13%
12%
11%
10%
9%
8%
44%
35%
29%
24%
21%
19%
17%
15%
14%
13%
12%
10%
50%
40%
33%
29%
25%
22%
20%
18%
17%
15%
14%
12%
55%
44%
38%
32%
29%
26%
23%
21%
19%
18%
17%
14%
58%
48%
41%
36%
32%
29%
26%
24%
22%
20%
19%
16%
62%
52%
44%
39%
35%
31%
29%
26%
24%
23%
21%
18%
64%
55%
47%
42%
38%
34%
31%
29%
26%
25%
23%
20%
67%
57%
50%
44%
40%
36%
33%
31%
29%
27%
25%
25%
71%
63%
56%
50%
45%
42%
38%
36%
33%
31%
29%
30%
75%
67%
60%
55%
50%
46%
43%
40%
38%
35%
33%
This table indicates an encouraging scenario for businesses that operate on low margins.
This could well be the case for you if you are operating in a competitive market. The table
shows that a business currently operating on a profit margin of 20% could raise its prices by
10% and could afford to lose one third of its sales volume before profit slipped below its
previous level. A business operating on a 50% profit margin could raise its prices by 20% and
afford to lose 29% of its sales before profit would be reduced.
The critical issue here is: How price sensitive is your market? If you can develop some
elements into your marketing strategies that can reduce the emphasis on the price in the
buying decision, then the rewards from adopting a premium pricing strategy can obviously
be quite significant. Most customers do not buy merely on price. The ones that want you to
compete on the basis of price are better left to your competitors to deal with. In my
experience, they are never worth the effort. They will bargain your price down, cutting your
profit margin. Then they will want the earth, trying to extract everything they can from you
18
before they pay for the work. They will complain about the slightest thing that goes wrong.
They will call you back to fix things when there is nothing wrong. Who needs customers like
that? The customer is not always right. If you are making a reasonable profit on each
contract, you can afford to be selective. You deserve to work for customers who value the
extra effort and value that you put into your work. They know that it is going to be of
benefit to them and they are prepared to pay for that bit extra.
Low price strategies, discounting and price cutting don’t work in this sort of environment.
They only work for high volume, price sensitive products. Where you have to provide a
quote to win sales, make sure that each sale you win is worth getting. It is better to sit
around doing nothing than to work hard to complete a contract and end up with no profit
(or worse) because you went in at too low a price. Don’t compete on price alone, unless you
want to minimise your profits and struggle on with mediocre success rates for your quotes.
How do you achieve growing sales, increased margins and superior profits? Firstly find out
all the things that customers need and make sure that you communicate to them that you
can fulfill their needs and tell them how you will do it. In other words, firstly determine
where you want to POSITION your business in the perception of the market and develop
deliberate strategies to communicate that perception to the market. We will cover this
aspect in the next section.
EXERCISE
Calculate your current profit margin on your products or services.
Use the tables above to calculate how many extra sales per month you would have to make
to achieve the same current amount of profit you make each month, if you reduced your
prices by 10%.
Then calculate how much your sales volume would have to fall by before you reach your
current profit level, given your current margin, if you increased your prices by 10%.
What would be the better strategy?
19
4. YOUR POSITION
What is meant by your “position” in the market? According to one textbook, “market
positioning means arranging for an offer to occupy a clear, distinctive, and desirable place in
the market and in the minds of target customers”1 . In other words, your “position” in the
market describes the way your business, in combination with your product or service, is
perceived in the eyes of the customers in your market, in relation to how your competitors
and their offerings are perceived. Positioning is not just about your price level decision.
Each company-product-service offering consists of a combination of attributes, of which the
price level is just one, which relate to the features and benefits that a customer will consider
in a purchasing decision.
Competition between offerings is more intense when differences between the offerings are
less obvious. When a customer is not able to perceive a difference between attributes other
than price, only then does the price factor become all important. The task for the business
owner in marketing then, is to identify their position in relation to the other attributes of
their offering and to highlight the “points of difference” in relation to competitors’ offerings.
The next task is to communicate these points of difference to the customers. In other
words, the marketing function is about communicating the differences in how your product
or service meets various needs of the customer, compared with other offerings. You may be
aware of terms used by marketing specialists to describe this objective, such as
“differentiation” or “unique selling proposition” or even “competitive advantage”. However,
the phrase “points of difference” is probably easier to understand, as it clearly highlights the
focus of the marketing task. By the way, the term “position” relates to the relative
positioning on a graph of two (or more) products/ services when comparing them on two (or
more) attributes. A two dimensional representation can be shown as follows:
PRODUCT POSITION MAP
High
x Product A
Strength
Low
x Product B
High
Low
Weight
20
As in this diagram, strength and weight are two attributes that could frequently be of
concern to a purchaser who is considering a particular product. Often decisions like this
relate to mutually exclusive features. In this example, strengthening the product is achieved
only by adding weight. If strength is of greater consideration than the convenience of having
a light weight product, Product A would be the preferred choice. However, if the customer’s
needs were oriented towards convenience, the customer may choose to sacrifice some
strength to have a lighter weight product which could be more easily moved around.
This scenario raises many questions for most small businesses. These questions are often
not easy to answer, which is why many businesses are one dimensional in their marketing
approach. However, the value for the business owner who pays the price to find the
answers far outweighs the costs involved.
What are the questions?
The questions relate to customer preferences.
The art of
successful marketing is to discover a customer need and to find a product or service that will
best satisfy that need. This is where most small business owners fall down. Because of their
technical background, the majority of small business owners first develop their product or
service, often based on the best technological features, and then try to find a customer to
sell to. The problem is that they have not adequately matched their product and service
offerings to the customers’ needs. This makes the task of marketing much more difficult
than it needs to be.
The other factor to consider is that customers are emotional creatures. People, being
people, have a range of emotions which can change frequently. As a business person, life
would be much more straightforward if people made purchasing decisions based on logic.
But they don’t! You only need to look at a few ads on TV to work this one out. However,
many small business owners forget this fact and become upset when the customer makes a
seemingly illogical decision to buy from a competitor. If you don’t get anything more out of
this manual, this one fact will change your sales results dramatically, if you understand it and
use it in your sales presentations.
People make purchasing decisions based on emotions, but they use logic to support their
emotional decision.
Have you ever heard the phrase “sex sells”? Pure emotion! How many products have been
sold because of how the customer believes the product will make him or her feel, rather
than because of the superior technical features of the product? Think about the last time
21
you bought a car. When I bought my last car, I found one that looked prestigious and that I
felt good sitting in. I enjoyed the way that it took off from the lights and how it gripped
through the corners. When I felt great about the car, I allowed the sales person to convince
me that the overdrive was going to be useful and that the air bag would keep me safe and
that I was really doing the right thing in buying that car. He gave me a lot of good reasons
why I should buy that car. I told my friends all those reasons to justify why I bought it. I just
can’t remember many of them now. But I still feel good in that car and I love the way it
handles.
It is not just cars or other big ticket items that stimulate us to act emotionally. If you analyse
you own buying decisions and those of other people, you will find that by far the great
majority of decisions are based on emotional reasons first, even if logical reasons are used to
support the decision.
But what does this mean in terms of your market position? It means that you need to
analyse customer preferences in relation to the many attributes that relate to your business,
products and service approach. If you are already locked into selling a particular product,
you need to determine which customer needs you are capable of satisfying. How many
customers in your market have these needs compared to other needs? You may need to do
some market research to properly analyse this question. Most small businesses don’t like to
do market research because they feel that it is not worth the money. However, it is much
better to spend some money on market research to discover you have a limited market,
than to spend it on manufacturing the product and marketing it, only to find out that you
can’t sell it because not enough people want it.
The result of this analysis is that you are able to develop a Customer Preference Map, which
can be compared to the Product Position Map, to determine how well the market is covered
by products with particular features. This analysis can then also be used to compare the
market positioning of your competitors. Using this type of market analysis, you are able to
determine the most appropriate position for your business. You are quite likely to uncover a
market niche which is being ignored by your competitors. By focusing your marketing
strategies on gaining business from this niche, you will then be able to extract your business
from direct competition with your competitors. When this occurs, you will no longer feel
the pressure to minimise your prices and profit margins. You will be able to corner a
segment of the market which will be happy to pay your price to receive the product and
service attributes that only you provide.
22
But what are these customer preferences we need to consider? With most of these
preferences, the customers’ choices will relate to subjective judgements, or emotions. They
will prefer the product or service which has the bundle of attributes which they feel best
about. Preference decisions relate to factors like:

Function. This is the basic preference which judges whether the product or service will
actually fill the need that it was designed to satisfy. There will often be a range of
products that achieve functionality at varying degrees of satisfaction, or quality.

Economy. This is the second basic preference. Economy will often be a trade off with
functional quality.

Safety. Safety is a very important consideration in many areas.

Appearance. How attractive or visually appealing is the product? How important is this
factor in relation to your product?

Comfort.

Convenience.

Prestige.

Luxury.

Excitement.

Smell.

Feel.

Sound.

Taste.

Adventure.

Security.

Credibility and trust.

Reliability.
23

Durability.

Care (love).
A combination of many of these factors will be considered in every buying decision. The
more attributes relating to your offering, which match with the customer’s preferences, the
greater value your offering has to your customer. The customer will choose the product
with the greatest perceived value, rather than the one with the cheapest price. The most
important element here is the customer’s perception. It is your task as the marketer, to
ensure that the customer’s perception about your product or service includes an accurate
perception of all these preference considerations.
Most small businesses don’t do this well. Most focus on function and economy factors, but
neglect the other aspects of their offering. This is what keeps them trapped in the price
competitive area. You need to do some research to discover the range of preferences your
customers have in relation to your product or service and the relative importance of each
preference to the customer. This research need not cost much. You may learn all you need
to know by sending a questionnaire to your existing customers, to find out what was
important to them in their buying decision and why they chose to buy from you.
It is said that “knowledge is power” and in this case it is definitely true. The knowledge you
can gain from this type of analysis and research can give you an enormous competitive
advantage and provide the foundation to develop powerful approaches and strategies in
your marketing. Don’t be like the rest of your competitors.
Investing time into the
following exercise will create such an incredible advantage for you that your competitors
won’t stand a chance against you.
EXERCISE
Take the list of attributes written above and brainstorm how your product or service
addresses each of those attributes. Can you imagine the impact you can create through your
marketing when you understand and can clearly communicate to your customers how your
product or service meets their emotional needs for all these attributes? Spend at least a
couple of hours a week until you get through the list and write these emotional connections
into your marketing materials where they fit. Get help if you need it, because this one
strategy will be worth the investment many, many times over.
24
The best investment of your time in your business is to work ON your business to develop
and present real POINTS OF DIFFERENCE that make you stand out from the crowd of
competitors and allow your customers to perceive that they are receiving added value when
they choose yours as the winning quote.
This perception is achieved through your
promotions and your presentation. These are the next areas we will consider.
25
5. YOUR PROMOTION
You may be wondering why we need to talk about your promotion when we are discussing
winning quotations. It would be safe to assume, if you are at the quotation stage, that
whatever you have done to promote your business to gain the contact which has led to the
quote has obviously worked. This is true, but our real objective is to win profitable business
through the quotation process, rather than just be able to present the quote. To win
profitable business, the quotation is just the final step in the process, rather than the only
step. This is again where many small business owners go wrong and why the final decision
so often comes down to the price factor.
Most business owners rely totally on the quotation document to do their selling for them.
This is never enough. Unfortunately, more often than not, the customer is left to make a
choice between quotes which present the minimum information and has to decide by
making a “best guess”, which usually comes down to choosing the cheapest quote out of the
group of unsatisfactory offerings available.
To make a fully informed decision, the customer needs to know all the information relevant
to the preference factors discussed in the last section, as well other information which helps
to satisfy their anxieties and to shape their expectations. How can the customer glean this
information if the quotation document only (typically) spells out the minimum of
product/service specifications, the price and the relevant terms and conditions of
performing the contract? Imagine how the customer would feel if in the relationship with
the sales person, all of these concerns have been competently answered and these answers
are confirmed in a professionally presented quotation package. Compare that to the normal
quote. What a difference?
It is too late to try to make a difference when it comes to the final quote stage. The
perception of added value must begin to be developed right back at the promotional stage.
It needs to be recognised that every contact you and your business has with the customer
creates a perception, or an impression, in your customer’s mind. First impressions are
important, but so is each subsequent impression that your customer develops, with each
contact point. Jan Carlzon, in his superb book, calls these contact points “Moments of
Truth”.2
26
Generally, your first impression for your customers, is created by your promotions or
advertising. Your initial exposure to your customers comes at the time they see or hear your
promotional material. It is this material that attracts their interest and stimulates them to
call you for a quote.
Here is the critical question. Does the style and content of your advertising material attract
the customers with the right profile to match your market position?
Your promotional material must be clear in its message. It must begin to answer the
preference questions relating to the customers’ anxieties and expectations and the answers
you present in your advertising must be consistent with the answers relating to your market
position offerings. Many business and sales people are frustrated by poor quote conversion
rates because they try to be all things to all people. Their advertising may be successful in
attracting inquiries from potential customers, however many of the customers attracted are
the wrong customers. If you are selling premium products and service, you do not want
your advertising to attract “price shoppers”. If you have positioned your business to present
offerings that do not compete directly with the “budget” products, you do not want to
attract the budget conscious buyer. Your advertising needs to be aimed at the customer
who is looking for the benefits that your offering presents. It must promote those benefits
in a clear, unmixed message. Any confusion in the message you are trying to deliver, will
undermine the results you achieve at the quotation stage.
This is where conducting the exercise in the previous section provides so much value.
Integrating the findings of that exercise into your marketing materials will ensure that you
attract the type of buyers who resonate with the emotional content of your marketing. This
way, when your buyers come to you, they are already predisposed to want what you are
offering. This makes the sales job so much easier and your competitors will hardly be on the
radar in your day to day business life, because your customers want what you offer and your
competitors who try to win based on cheap price will not get close to providing what your
customers want.
27
CONCLUSION
Competitive situations are common for many of us in business, particularly in service based
businesses. Winning competitive quotes is a key factor in how successful we are in business
and a huge factor in being able to dominate the local market.
What then is to be done in such price competitive situations? My short answer is: don’t play
the game. Stay out of price competition altogether. How can that work, I hear you ask?
Let’s look at some realities that tend to become obscured from our view when we get caught
up with the threats in price competition.
1. In most markets, the lowest price competitor does not win 100% of the sales.
2. The lowest price competitor is rarely the most profitable business in the market.
3. People buy on value, not on price.
4. People buy for emotional reasons first, then support their emotional decision with
logic.
5. Price is only one of several factors involved in the buying decision and rarely the
most important.
In any market, there is normally a range of competitors with a range of pricing levels. Only
one has the lowest prices. However, the lowest price competitor does not get all the sales.
Therefore, there must be other reasons people buy from the other competitors, which are
not based on low price.
Because the lowest price competitor usually operates on the thinnest margins, it is rare that
they can also be the most profitable. They have to have high volume to cover fixed costs.
You only have to do some fairly simple arithmetic to work out that when you drop your
prices when you already have low margins, you have to sell considerably greater quantities
to achieve the same profit levels. It is much easier to run a business based on high profit
margins and lower volumes and normally easier to make a higher profit with that approach.
People buy what they perceive to be of value. There are many instances that can be quoted
where people prefer to pay higher prices for almost exactly the same items, because of the
perception that the high priced article is more valuable. You only have to look at the
perfume and cosmetics industry as proof of this argument.
28
Emotions are everything in sales and marketing. Again, look at the perfume industry. Why
does someone pay hundreds of dollars for a brand name perfume when a cheap bottle with
a similar fragrance would make them smell as nice? Charles Revson, founder of Revlon, has
often been quoted as saying, “In our factory we make cosmetics, in our stores we sell hope.”
It is vital to have a defined strategy to deal with price based competition. As in an armed
battle, unless you have an overwhelming force, you don’t face an attack head on. You must
have a strategy to outflank the enemy and strike at its weakest points. In business, without
the power to meet the price challenge head on, it is far better to develop a strategy that
does not rely on price as part of the competitive mix. We have seen the relevance of factors
other than price above. This is the essence of marketing. You must promote your strengths
and attack competitors’ weak points. If we just adopt a strategy that is the same as our
competitor’s, we will fail. It is far better to develop a marketing strategy based on increasing
the perceived value of your product or service, or combination of both, to take the price
element out of the equation.
In your strategy, find ways to add value to the core product or service you offer. How can
you package the product or service and deliver a bundle of elements that make your offering
much more valuable than what your competitor offers? Can you offer better quality or
superior guarantees? There are many ways to add value. Be creative. Then develop
methods to communicate that value to your market with emotion laden messages. Make it
so appealing that it delivers an element of prestige, excitement and as many of the other
attributes in our list as possible to your customers when they buy your product or service.
What emotional elements can you attach to your offering? Communicate the emotions
engendered by owning your product rather than merely the functional benefits and logical
reasons.
If possible, develop a mystique surrounding your product that makes it so
attractive that people want it at any price. Study the diamond industry to see how their
marketers have achieved this. Did you know that diamonds may be forever, but they have
only been used in engagement rings since the middle of last century? They now dominate
this market due to clever marketing rather than any fundamental value that diamonds
possess. Sell emotion!
The final tactic in delivery the market dominating strategy is to develop an attraction based
marketing and sales system and ensure your sales people are trained and drilled until they
excel in the process. No matter how good your strategy, in the battle it is the skill of the
29
troops in delivering the counterattack that confirms the victory. Sales people need to be
trained to focus on the benefits of the offering and matching benefits with customers’
emotional wants and needs and not to use low price as a sales tool. Sales people cave in
against price competition only when they haven’t been trained to sell skillfully, using other
motivators and differentiators to take price out of the equation.
There is no need to fear price competition. In fact, if your competitor uses low price as a
weapon, be glad. That means you clearly know their strategy. You can use that knowledge
and develop a value based strategy that does not sacrifice profit. You will end up beating the
competition because you have done a better job of marketing and a more skilful job of
selling. You will end up dominating your local market.
REFERENCES
1
Kotler, P., Chandler, P., Gibbs, R. & McColl, R., “Marketing in Australia” 2nd Edition,
Prentice Hall of Australia Pty Ltd, 1989.
2
Carlzon, Jan, “Moments of Truth”
30

How to Dominate Your Local Market

Transcription

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