Evaluating Customers to Drive Revenue and Profitability

 

 

As sales come in it can be illuminating to develop a sense of the customer installed base makeup and segment contributions to the business. The above figure indicates one form of analysis that is useful in understanding which customers or segments are generating revenue and profit. In this example, there are low-value and high-value customers. The low-value customers, making up 50% of the customer installed base by number, are generating only 20% of the product revenue and 10% of the profits. Half the customer base is generating only 10% of the profits! Why would a business want customers who deliver little or no value to the business? Why are they becoming customers in the first place? Are the wrong segments being targeted, is the messaging incorrect, or are certain channels or partners responsible? Low-value customers will drag down your MROI and waste marketing dollars. What a business really needs are more high-value customers. In the example, high-value customers make up only 10% of the customer base by number but are generating 60% of the product revenue and 40% of the profits. How are these customers being acquired? What are their characteristics? How can the business get more of them? This type of analysis can identify the truly desirable customer types and help direct changes in the strategy and marketing/sales efforts to acquire more high-value customers, minimizing the potential for revenue or profitability problems.

 

Next time I’ll talk about how to analyze your channel. Visit Blue Rain Marketing at www.bluerainmarketing.com

The Impact of Poor Positioning

Because how you define your positioning essentially affects all

communications and launch activities you will pursue while driving the

product to a successful launch or marketing campaign, it is extremely important to get it right.

To understand why, here are some examples of issues (in no particular

order—they are all death blows) that will occur if you don’t clearly define

your positioning, are inconsistent, or just plain get it wrong:

 

• You Will Fail to Successfully Engage Your Potential Customers: If

you deliver the wrong message to your customer, or deliver it in a way

that doesn’t ring true to them, the odds they will act on your message

are about nil. That doesn’t sound like something you want to happen

for a successful launch or campaign. Good positioning helps focus communications

to the customers using the right and relevant value points, where the

focus should be.

• You and Your Company Lose Credibility: If you are inconsistent

with the messages you are delivering, or you are not presenting welldefined

and credible positioning value propositions, you will not be

taken seriously and could be perceived as not credible. This is true not

only for end-customer perceptions, but also those of press, analysts,

and partners. Why should an editor or industry analyst believe you

if you are constantly changing your story? Why would a potential

partner want to do business with you—do you really understand your

customer, the market, and your product’s place in that market relative

to competition? What do you think the impact of negative credibility

will be for your launch or campaign?

• Your Marketing Collateral Is Totally Random and Not Cohesive: I

love to show my clients their competitors’ marketing collateral to point

out the differing claims and statements made in different collateral

pieces and how desperate that seems to make them. Of course,

customers will see these inconsistencies as well, which will likely plant

seeds of doubt about the competitors’ product, as it should. Without

consistent positioning points that all your marketing communications

materials support and reinforce, your communication points will be

random and disjointed.

 

• No One Is on the Same Page Internally: Isn’t it great when no one

or no group within your organization has a common understanding

of your key messages or product value propositions, and everyone

has their own pet version of what “really” should be communicated?

This situation definitely helps cross-group communication and

collaboration, especially if everyone has a different version of what

should be communicated. Of course I’m being sarcastic—that

situation is the last thing you want during a product launch or in a campaign. To the

contrary, agreeing internally about your key messages and positioning

statements facilitates working together toward common goals, a

common understanding of the customer and market, your product’s

place in the market, and a constant and consistent reinforcement

of these messages and value points externally. Creating agreement

internally around positioning forces explicit trade-offs between what

your product is, and is not, which is a good thing.

Obviously, you would not want any of the above to occur, since there

is typically plenty of work to focus on when driving to launch or executing a marketing campaign.

 

Next time I’ll illustrate some concepts about different levels of  positioning. Visit Blue Rain Marketing at www.bluerainmarketing.com

Basic Benefits of PR For a Product Launch or a Marketing Program

Public relations (PR) is an often misunderstood element of product marketing, whether in a launch or sustaining marketing phase. There is a false perception that PR activities are “spin,” lies, and unsupportable, slimy marketing speak. These perceptions are generally held by those who think that PR is all about writing a press release, filling it with half-truths, releasing it on the wire, and voila, you’re done! This couldn’t be further from the truth. In reality, PR encompasses a broad range of specific, focused activities that involve multiple target audiences and deliver on specific goals to support all marketing mix activities required for a successful product launch. For a marketing plan or a product launch, there are a number of key outcomes that your PR activities can help accomplish:

• Assist in creating broad positive awareness and education about the product, your messages, and your strategies to the target customer base. Awareness and education is the first step to incent trial and purchase of your product. PR is one element of the marketing mix that can assist in this regard.

• Help establish the product’s credibility to the target audience and how it can help solve their business needs. Having solid positive press and analyst support can help place your product into the customer’s purchase consideration set.

• Accurately position your company and your product. If you are not actively conveying the positioning points you want to claim, then someone else, like a competitor, will position you in the manner they choose.  

• Assist in positioning the competition from your perspective, and reposition the competition to your perspective. You must position your company and product and actively convey the positioning perception you wish to create around the competition. If the competition occupies a positioning space that places you at a competitive disadvantage, then you need a strategy, talking points, and evidence to re-position that competitor.

• Help build excitement in the marketplace. A well-planned PR strategy can create anticipation in the market, which could translate into revenue post-launch.

• Build and enhance key partnerships and show a critical mass of support for your product. Not only will PR activities around your key partners provide evidence and credibility to the press, but working together on PR-related activities can strengthen the partner relationship and further publicly tie you together, creating a compelling incentive for win-win scenarios in your partnership activities.

• Create and show momentum and progress around a product launch and the product’s market acceptance. As you build to your launch crescendo, you want to show accelerating progress around key success drivers for your product—more partners signed up, more customers are interested, and large well-known customers adopting your product, among others. The pace of your PR activities and your strategy to release information will help convey the momentum and traction you are gaining in the marketplace, providing further evidence for press and analysts, which could lead to positive write-ups.

• Create fear, uncertainty, and doubt (FUD) in the marketplace. As a competitive tool, PR can help change thinking and create desired competitive responses. Just as in military communications, misinformation or misdirection can be a powerful competitive tool to shift a competitor’s focus and capital or other resource investments to your advantage and to blunt the competitive threat you may face when your product gets to market.

Depending on your particular situation you may choose to optimize around a few or all of these outcomes. To successfully meet marketing execution or launch goals and metrics, PR is obviously not the only element of the marketing mix to use, but it is important because of the leverage and breadth of reach that can be achieved. For example, a number of print publications also have Internet sites, and a print article about your product will likely also appear on the web. Some publishers also have multiple differently branded publications living under one corporate entity. One article can flow through and be distributed throughout these multiple publications. These are examples of PR leverage—one article, multiple messaging distribution channels. Multiply this by a large number of potential publications and the leverage upside can be enormous. As an example, one interview I did with the Associated Press was put out on the newswire and picked up by over 50 newspapers, including The Wall Street Journal.

Breadth of reach is also a PR benefit because you can reach a broad number of customers in a highly cost-effective and credible manner. Take the example of a publication that targets IT Professionals. If it’s a well regarded trade magazine, and has a broad readership base, a one-page advertisement could easily cost $25k-$50k or more to get your message out to the publication’s circulation base of 100,000 readers. Contrast that with an hour of your time effectively spent with an editor from that magazine discussing your product, plans, or strategy. If a positive published article results from that conversation, not only did it cost you a lot less (your time and your PR firm’s time and fees) to accrue awareness, but the article is more credible to the readership, as it derives from a trusted, third-party source vs. your for-fee and self-promoting advertisement. A credible message from a trusted source to your 100,000 potential customers—that is breadth of reach. The real focus of your PR efforts is how to achieve that leverage and breadth of reach to gain the awareness, credibility, and other previously indicated PR outcomes for your product, messages, and strategy. That is where all the hard work lies. For example, you don’t just willy-nilly call up an editor, have a quick discussion, and expect a great and positive article to result. A huge amount of both up-front and ongoing work is required to get the desired end results. This chapter will illustrate how to think about PR in the context of your launch and help frame your planning process. To set the context, we’ll explore the target press and analyst communities you must approach and how these professionals think.

Next time I’ll talk about how to understand editors and industry analysts. Visit Blue Rain Marketing at www.bluerainmarketing.com

Product Positioning Defined

“What we’ve got here is a failure to communicate” –Cool Hand Luke (1967) 

This famous movie line points out that even in a contained environment like a prison communication can break down, be misconstrued, or simply be ineffective. Imagine how communication clarity might become problematic when, in an unconstrained environment (the business market), communications are sent to many at the same time in anonymous manners (advertising, direct mail, PR, etc.)!

The potential for lack of clarity in business and marketing communication, with the associated negative ramifications, underscores the need to get your communication points right from the beginning, as you move your product toward launch, before you begin any large-scale customer communication activities.

Assuming you have done your homework, you should have a solid understanding of your customer targets and segments, including who the product will be designed for and who will be buying it, who influences and decides the purchase, and what their key pain points are. Through your research and interactions with customers, partners, and competitors, you will also likely have some understanding of the key value propositions, features, and benefits that are attractive to customers.

Given this, you need to determine exactly what you will be saying to these potential customers about your product, to whom you will say it, why the customer will care about what you are communicating, and what you want to say about your product relative to the competition. The What, Whom (to customer and against competition), and Why should be completely defined by your positioning messages if you want to be effective in your marketing communications. If you only take away one actionable concept from this book, the positioning and messaging concepts and tools in this chapter will provide you with immediate and tangible value.

Product Positioning Defined

Simply stated, product positioning defines the important and differentiated attributes about your product to be communicated to a particular target audience, which places your product and its attributes into context relative to customer needs and to competitive alternatives. The intent is that the customer will understand, internalize, and act upon your positioning in the way you desire. From a business perspective, you typically want positioning to assist in driving product awareness, help to place a product into the consideration set for evaluation and trial, and eventually purchase. Positioning may need to differ somewhat across different target audiences or segments, as each may have different underlying needs or disparate value propositions might appeal to a particular customer group. However, your core product positioning, once developed and finalized, should be viewed as long-term and long-lived, and be relatively stable over time. Any evolution of your positioning, unless there are significant changes to the product or company, should be incremental over a longer time horizon, as opposed to frequent, radical changes over short time periods.

Defining product positioning is a primary product marketing activity and will (and most definitely should) affect and flow into just about every other marketing and launch activity. For clarity, it should be understood that positioning is not the same as messaging or branding. Positioning defines the general and core value propositions you intend to communicate; messaging is the incarnation of that positioning via your communication mechanisms. For example, your positioning statements will flow into and guide clear and on-point messages distributed via your marketing collateral, sales tools, demos, press releases, presentations, website, signage, advertisements, direct mail, videos, and any other out-bound customer, partner, or press communication vehicle you might use, whether written or verbal. Branding, which incorporates and conveys the accumulated experiences and associations a customer has with your product, is not positioning. Excellent branding essentially reflects an excellent execution of your positioning value points.

Next time I’ll talk about the impact of poor positioning. Visit Blue Rain Marketing at www.bluerainmarketing.com

Business Development Targets Market-Making Partners

 

To successfully launch or market your product, your firm may need to establish significant and deep business relationships with other companies. In a normal product launch cycle, a company may need to develop highly strategic relationships with a small number of close partners whose products, services, or technologies can fill gaps in the go-to-market strategy that your company cannot or will not fill.

 

The relationships formed with these types of companies are market making relationships, meaning they can make or break the success of the product launch and post-launch activities. Market-making relationships are those that could:

• Provide critical technology you need for your product

• Enable key services to be delivered with your product

• Open important distribution channels for you

• Deliver applications or complementary products that work with your product

• Provide access to significant or hard-to-find expertise or knowledge, either technical or market/customer expertise

• Secure key go-to-market sales and marketing partners

• Provide market credibility and validation if your firm is new to the market

 

Given their broad scope, depth, and potential complexity, strategic relationships like these may take a fair amount of time to put into place, and their formation may need to be initiated and activated years before your product actually hits the market. With relationships at this level, a formal written agreement is typically required to define and codify in some detail each party’s responsibilities in the relationship and any monetary commitments. As the rollout or marketing plan is being developed, the specific needs for market-making partner relationships and the time frame to put these partnerships into place should be considered.

 

At Microsoft, these market-making relationships and partnerships are typically developed under the “Business Development” moniker. The folks in business development roles are responsible for strategizing, evaluating, selecting, and closing deals with market-making partners. Market-making partnerships are different from typical relationships with other channel or market partners—the hundreds of smaller, more numerous industry partners that may have a role to play in your partner ecosystem, but are not fundamental to the launch success. Figure 5‑1 above indicates the high-level relationship between the market-making partners and the broad-breadth partner group. Business development resources should be targeted at acquiring the market-making partnerships. The broad-breadth partners are best acquired and managed via a more programmatic, arm’s-length channel partner program and will be the topic of future blog posts. Visit Blue Rain Marketing at www.bluerainmarketing.com

 

Partnering as a Strategy

While many companies maintain a direct sales force, large direct sales forces accrue large fixed overhead costs that can drive up the cost of sales. Going solely direct can put your company into a competitive situation with every other firm in your industry, and at a competitive disadvantage by limiting broad end-customer reach and touch opportunities. One solution to these limitations is to focus the direct sales force only on the limited number of key large customer accounts that require a one-on-one management presence, and rely on a broad channel partner program, programmatically managed, to scale the end-customer reach of your product. The Windows operating system business model is a classic example. There is no way Microsoft could sell as many copies of Windows, or have anywhere close to the thousands of applications built on Windows, if the product was only sold direct by Microsoft, or if Windows applications were solely developed by Microsoft. Broad customer reach is achieved through a large number of channel partners that distribute and sell Windows itself, as well as products and applications built on the Microsoft operating system. To acquire this scalable reach into the end-customer market, you need to develop and deploy a channel partner program that enables the right partners to distribute, deliver, sell, install, service, and support your product, and possibly build solutions that include it. This is true for technology and non-technology products alike. For example, to broadly resell a lower-tech product like ballpoint pens you need distributors and resellers like office supply companies (e.g., Office Depot), retailers (e.g., Wal-Mart, Target), and possibly specialty retailers (e.g., travel supply outlets, pharmacies like Rite Aid). For software products, you need distributors like TechData, and possibly ISVs to build solutions using your product or VARs to resell it. For business development activities, the partnering focus is generally entirely on strategic partners. However, the one-to-one or one-to- few model of business development is not a scalable model to generate a large number of partners and sustain a broad partner ecosystem. You can’t effectively recruit and manage hundreds of partners on a one-to-one basis. What is required to achieve partner ecosystem scale is a “breadth partner program”: a programmatic, scalable, arm’s-length approach to engaging and retaining small to mid-size (and perhaps some large) partners. A breadth partner program is all about creating and managing these relationships in an efficient, scalable and profitable manner. It cost-effectively enables product revenue generation from a larger number of customers without the need to rely on a large direct sales force.

Next in this category, i will discuss the key objectives for a broad channel partner program.  Please let me know your thoughts on this post. Visit Blue Rain Marketing at www.bluerainmarketing.com

 

Understanding Your Marketing Plan or Launch Strategic Intent Starting Point

 

When creating product launch or marketing plans you should start with a broad perspective to define the high-level landscape. Planning around customer definition is no different, and first assessing the high-level situation relative to your customers and the product you are launching is a useful conceptual exercise. Figure 2‑2 describes a framework for this. Understanding where your situation falls in the Figure 2‑2 grid is a start toward fully understanding your target customers and implies the amount of marketing effort you must provide to clearly identify and understand your customers and rollout the product. For example, from Figure 2‑2, determine which quadrant describes your situation:

• Quadrant 1—Existing Segment Penetration: You are essentially launching or re-launching your current product to existing customers, although you may be reaching more broadly and expanding into new customer accounts (e.g., focusing on Fortune 100 today, expanding to Fortune 1000 with the launch or re-launch). Lowest launch marketing effort required relative to other quadrants.

 • Quadrant 2—Segment Extension: You are extending, or adding, new customer targets. In essence, you are launching your existing product into a new category of customer not previously addressed. Moderate level of launch marketing effort required.

• Quadrant 3—Cross-Sell/Up-Sell: Here you are developing a new product (could be brand new, could be upgrade, or next version) and want to launch it into your existing customer target base. Significant level of launch marketing effort required.

 • Quadrant 4—Brand New Ball Game: In this most radical quadrant you have a brand new product and are focusing on a completely new set of customers. Considerable marketing and launch work is required.

Understanding your goals and intent relative to the Figure 2‑2 grid can help you focus on what you intend to achieve with your launch. This level of focus can also help ensure that relevant stakeholders across the organization (technical, business, operations, etc.) are on the same page.

Although it is quite possible your intentions may fall within multiple quadrants of the grid, the most relevant ones for a new product launch will likely be Quadrants 3 and 4, where you are taking your soon-to-be launched product into your existing customer base or into new market segments. A typical new product launch scenario for companies with existing products in-market is to go after a cross-sell/up-sell scenario into your current customer base while also attempting to move into new customer segments with the new product.

This is a fine strategy, but it requires that the appropriate marketing program development, funding, customer understanding, and resource/ level of effort prioritization and trade-offs are explicit and rational. Typically a “one-size-fits-all” approach leads to mediocre results within both scenarios. You need to design your go-to-market plans and post-launch sustaining market plans to address the unique requirements of each scenario (or quadrant you are addressing) or risk failure.

The required marketing effort will vary somewhat depending on the quadrant addressed. Essentially, each quadrant presupposes a different level of customer knowledge and places you at a different starting point from a launch perspective. Any launch, by default, requires a significant amount of work and some basic must-do activities. However, starting with significant clarity about who your target customers are gives you a leg up in the launch process and removes some level of effort.

For example, in a Quadrant 1 scenario, you likely already have some understanding of and data about your customers, access to prior sales information, existing marketing collateral, current product messaging, and are executing ongoing demand generation programs. However, in Quadrant 4, you have nothing—no customer data and no direct prior customer knowledge. Everything must be created from scratch, including developing positioning and messaging, creating brand new collateral, developing new partnerships, and understanding and describing your customer attributes.

Regardless of which quadrant you fall into, let’s assume that you don’t have a clear definition or understanding of your target customer, whether you have a new product to launch or an existing product in market. This is a valid assumption—it is never a bad idea to review and rethink existing assumptions about how you currently define your customers and your true level of customer knowledge and understanding. Regularly challenging your assumptions and continuing the learning process around your customer attributes, needs, and profile will help refine and improve your marketing and sales activities.

Your task then is to figure out who are or should be the correct target customers and to make sure all the internal stakeholders in your company are brought into this focus. Multiple customer segments could be candidates for your attention to ensure a successful product launch. However, each potential target segment may differ in relative importance regarding their need for the product, influence in the purchase decision cycle, or budgeting and spending authority. Some customer segments may be harder or more expensive to reach than others, and you must make appropriate trade-offs. It’s important to clearly identify exactly who you are reaching out to in your launch and subsequent marketing campaigns given your starting point.

There are three specific actions you must take to achieve clarity and definition around your target customers: •

-          Define and segment your customers.

-          Understand these customers and their attributes in depth. •

-          Describe the customer persona and usage scenarios in detail.

I’ll be blogging about these actions in upcoming blog posts-  stay tuned…Visit Blue Rain Marketing at www.bluerainmarketing.com

The Benefits of Clearly Defining Your Target Customer

It’s amazing how many marketers do not have a solid and precise definition of their target customers. Clearly identifying, describing, and understanding your target customers enables you to accurately formulate plans around fundamental go-to-market options and considerations that should feed into your marketing plan.  

 A crisp definition of your target customer will ensure you can do the following things: 

 Determine the Size of Your Potential Market: You can’t accurately estimate the overall market potential for your product unless you can clearly and accurately identify the intended target market to size the opportunity in terms of units and revenues.

 Understand Customer Needs and Frustrations: Addressing specific customer needs and frustrations (“pain points”) is the core focus of product development, value proposition creation, and messaging. Without a crisp customer definition, you cannot effectively address these needs and frustrations.

 Identify the Relevant Distribution Channels: It’s important to understand the purchasing patterns of the intended target market. Not every potential customer purchases through the same channels. To effectively deliver the product to the targeted customers, you need to understand which channels are important and how product typically flows through them. For example, you may learn that your target customers typically purchase similar products through systems integrators, to benefit from their product deployment and integration service offerings. If you had intended to sell your product only through retail channels (e.g., Wal- Mart) you would have created a mismatch with your customers’ buying practices.

 Resolve and Determine Proper Pricing: How you determine pricing depends on the situation. A complex server software product that is highly customizable will be more difficult to price than a pre-packaged, off-theshelf consumer software application. Pricing will also be driven by various stock keeping unit (SKU) offerings you choose to deploy. Low-end SKUs with lower functionality will likely be less expensive than high-end SKUs with full functionality. The key point is that by knowing your customers you will be able to determine what they pay for similar products (if they exist), identify which existing transaction models are acceptable, understand price sensitivity, and discover what percentage of their budget they will allocate for products like yours. You cannot properly price your product without this type of information, and you can’t get the information unless you know who to ask (i.e., your clearly defined target customer).

 Effectively Drive Product Feature Input or Required Service Offerings: One of the best ways to improve your product is to ask those who are using it or intend to use it for feedback on the product feature set. The proposed product feature set is a natural outgrowth of your work on understanding customer needs and frustrations. Your target customers can provide a wealth of information to fine-tune your product, identify significant gaps in functionality or usage capabilities, and understand what services customers need.

 Identify Key Value Propositions and Positioning: It is crucial to communicate your product’s proper value propositions as they relate to meeting customer needs. Your key communication, marketing, and sales messages will flow through all of your out-bound communication vehicles. To create the right messages, you must have a clear understanding of your specific customer target’s needs and pain points. A poor understanding will produce the wrong messages, resulting in ineffective marketing.

Understand Which Reach and Awareness Mechanisms Will Best Market the Product: Having a clear target customer definition lets you determine the best marketing vehicles to leverage that will best communicate your messages, e.g., identifying the magazines they read, what websites they visit, what newsletters they subscribe to, what analysts are credible to them, and what events they attend.

 

 

 

 

 

 

Without a crisp and clear target customer definition, a marketing plan is likely doomed to fail. What do you think? Visit Blue Rain Marketing at www.bluerainmarketing.com

Welcome!

This blog is intended for discussions around all marketing topics.  I’ll be posting content on topics ranging from social media, interactive marketing, marketing program development, strategy, channel marketing, and a host of other marketing topics.  Some of my posts will come from my book “Product Launch the Microsoft Way”  which is available on Amazon.com and the Barnes and Noble website if you want to check it out.   I currently own and run a marketing firm called Blue Rain Marketing, LLC (www.bluerainmarketing.com). I’m looking forward to interacting with you. Comment away!