© kenneth b. wong, december 2004 1 copyright k.b.wong & associates inc., january 2005 this...

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© Kenneth B. Wong, December 2004

Copyright K.B.Wong & Associates Inc., January 2005 This presentation is provided for the personal records of participants in the (name of session). Any reproduction or distrbution, in whole or in part, requires the expressed written consent of Kenneth B. Wong & Associates Inc

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Marketing to the Power of OneMarketing to the Power of One

by: Ken Wongby: Ken Wong

Queen’s School of BusinessQueen’s School of Business

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“Good Business” is the answer to…

How you can SURVIVE How you can SURVIVE and THRIVE…and THRIVE…

… … in a world filled with in a world filled with MARGIN-SUCKINGMARGIN-SUCKING

MAGGOTSMAGGOTS

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Who Are the Margin Sucking Maggots?

Senior Senior – when we fail to focus on the – when we fail to focus on the real real ManagementManagement drivers of profitability drivers of profitability

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The Four Routes To Higher Profits

Price

Cost

Minus

NetIncome

AssetsManaged

DividedBy

MarketShare

MarketSize

Times

UnitMargins

UnitVolumes

Times

Return OnInvestment

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Profitability Myth 1Profitability Myth 1

The Role of Marketing and Sales The Role of Marketing and Sales

is to build VOLUMEis to build VOLUME

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A Comparison of Profit Levers

Volume

Variable Cost

Price

3.3%

7.8%

11.1%

(Average economics of 2,463 businesses in Compustat)

A 1% change in...

Creates a change in operating profit of ...

KW-210

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MARGIN: Marketing’s New Emphasis Means…

We start seeing PRICE as an OBJECTIVE and not solely as a tool for building volume

The same processes used to generate premium prices can be used to apply marketing as an instrument of policy - as a tool of cost abatement as opposed to being a cost center

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How Marketing Changes When Price/Cost Abatement is An Objective

WHICH PRODUCT IS CHEAPEST?WHICH PRODUCT IS CHEAPEST?

A: $1.01A: $1.01

B: $1.00B: $1.00

C: $0.999,999,999,999,999,999,999,999,999,999,999,999,999C: $0.999,999,999,999,999,999,999,999,999,999,999,999,999

WHICH PRODUCT HAS THE BEST QUALITY?WHICH PRODUCT HAS THE BEST QUALITY?

A: “Wonderful Quality”

B: “Great Quality”

C: “Smokin’ Good Quality”

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Profitability Myth 2

All Volume Is Equally “Good”

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KW-245

Marketing Can’t Rectify Bad Strategic Choices

Segment Size Revenue per Customer * Claims Problems * Company ShareInsurance MinimizersInsurance Minimizers 30%30% 100100 100100 40%40%Basic BuyersBasic Buyers 34%34% 163163 71 71 27%27%Premium BuyersPremium Buyers 36%36% 181181 66 66 19%19%

* Indexes for customer revenue and claims problems set equal to 100 for insurance minimizers

Denotes segment average

Have and Have and Plan to Do Not HaveWill Not Intend to Drop to and Would

Drop Keep Cut Cost Not AddSegment I - Insurance MinimizersLife InsuranceAccidental DeathPrescription DrugsLong-Term DisabilitySecond Opinion of SurgerySeparate Coverage for AccidentsSegment II - Basic BuyersLife InsuranceAccidental DeathPrescription DrugsLong-Term DisabilitySecond Opinion of SurgerySeparate Coverage for AccidentsSegment III - Premium BuyersLife InsuranceAccidental DeathPrescription DrugsLong-Term DisabilitySecond Opinion of SurgerySeparate Coverage for Accidents

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The Profitability of a Transaction Focus

Profitcontributed by:

Time

Profit

Base profit

Cost of newcustomer

Source: Bain & Company (Frederick Reicheld) KW-153

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The Value of Customer LoyaltyThe Value of Customer Loyalty

Price premiumPrice premium

ReferralsReferrals

Lower costsLower costs

Increased volumeIncreased volume

ProfitProfitcontributed by:contributed by:

00 11 22 33 44 55 66 77

YearYear

ProfitProfit

Base profitBase profit

Cost of newCost of newcustomercustomer

Source: Bain & Company (Frederick Reicheld)Source: Bain & Company (Frederick Reicheld)

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Profit Impact of a 1 PercentProfit Impact of a 1 PercentIncrease in Customer LoyaltyIncrease in Customer Loyalty

00 44 88 1212 1616 2200

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SoftwareSoftware

Industrial distributionIndustrial distribution

Credit cardsCredit cards

Auto serviceAuto service

Auto/Home insuranceAuto/Home insurance

PublishingPublishing

Bank branch depositsBank branch deposits

Advertising agencyAdvertising agency

Percentage Increase in Profits per CustomerPercentage Increase in Profits per Customer

Source: Bain & Company (Frederick Reicheld)Source: Bain & Company (Frederick Reicheld)

VolumeVolume 3.3%3.3%

CostCost 7.8%7.8%

PricePrice 11.1%11.1%

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MARGIN: Marketing’s New Emphasis Means…

While we may want (or have) to serve everyone, not all customers are created equal in terms of the benefits of successful penetration.

Even where all customers must be served, not all customers need to be – nor want to be – treated in the same way.

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Who Are the Margin Sucking Maggots?

Senior Senior – when we fail to focus on the – when we fail to focus on the real Managementreal Management drivers of profitability drivers of profitability

Customers Customers – who want the highest quality – who want the highest quality at at the lowest cost the lowest cost

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Three Great Customer Myths That Destroy MarginsThree Great Customer Myths That Destroy Margins

1.1. All customers are created equalAll customers are created equal

2.2. All customers should be treated the same All customers should be treated the same

3.3. All customers want more serviceAll customers want more service

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Are We “Really” Customer Focused?Are We “Really” Customer Focused?

How to Improve the Retail ExperienceHow to Improve the Retail Experience(Sample Advice)(Sample Advice)

Personalize the experiencePersonalize the experience

Help the customer find their wayHelp the customer find their way

Explain product differencesExplain product differences

Show them you careShow them you care

Show them why they “get what they pay for” (i.e. up sell)Show them why they “get what they pay for” (i.e. up sell)

EDI, E-tailing, etc. etc.EDI, E-tailing, etc. etc.

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Match Your Plans to the Customer You Want

LOW PRICE SENSITIVITYLOW PRICE SENSITIVITY

HIGH PRICE SENSITIVITYHIGH PRICE SENSITIVITY

PRICE BUYERPRICE BUYER

Buys lowest costBuys lowest costproduct with product with

minimum acceptable minimum acceptable qualityquality HIGHHIGH

VALUEVALUEFROM FROM

DIFFERENTIATIONDIFFERENTIATION

LOWLOWVALUEVALUEFROM FROM


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Winning the Price (Compliance) BuyerWinning the Price (Compliance) Buyer

Buying Motive: Buying Motive: Minimum Acceptable Quality at Minimum Acceptable Quality at Lowest Price/ ComplianceLowest Price/ Compliance

Key Success Factor:Key Success Factor: Low Cost Producer/Low Cost Producer/Operational EfficiencyOperational Efficiency

Key Indicator:Key Indicator: CostCost

Typical “On Strategy” Ideas:Typical “On Strategy” Ideas:

Rationalize quality to “good enough” levels (e.g. generics)Rationalize quality to “good enough” levels (e.g. generics) Promotions that “prove” you have “good enough quality”Promotions that “prove” you have “good enough quality” Identifies “low value services” and lets the buyer do it Identifies “low value services” and lets the buyer do it Increase Standardization/Minimize AssortmentIncrease Standardization/Minimize Assortment Automate services: people aren’t scalableAutomate services: people aren’t scalable Minimize marketing costs by selling on priceMinimize marketing costs by selling on price Maximize distribution coverageMaximize distribution coverage

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CONVENIENCE CONVENIENCE BUYERBUYER

Buys what’s Buys what’s availableavailable

HIGHHIGHVALUEVALUEFROM FROM




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Winning the Convenience BuyerWinning the Convenience Buyer

Buying Motive: Buying Motive: Product AvailabilityProduct Availability

Key Success Factor:Key Success Factor: Wide Market CoverageWide Market Coverage

Key Performance Indicator:Key Performance Indicator: Distribution IntensityDistribution IntensityCapacityCapacity


Builds “Point-of-Need” AvailabilityBuilds “Point-of-Need” Availability Reduces shopping and transaction timeReduces shopping and transaction time

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RELATIONSHIPRELATIONSHIPBUYERBUYER

Buys best brandBuys best brandwithin reasonable within reasonable

price rangeprice range

HIGHHIGHVALUEVALUEFROM FROM




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Winning the Relationship BuyerWinning the Relationship Buyer

Buying Motive: Buying Motive: Best Product/ServiceBest Product/Service

Key Success Factor:Key Success Factor: Differentiation/ Product LeadershipDifferentiation/ Product Leadership

Key Indicators:Key Indicators: Price RealizationPrice RealizationProduct QualityProduct Quality


Helps identify clients with “tough problems”Helps identify clients with “tough problems” Offers ExclusivityOffers Exclusivity Maximizes Personalization and Frequency of ContactMaximizes Personalization and Frequency of Contact Increases Product Features Increases Product Features Enhances Ancillary ServicesEnhances Ancillary Services Broadens Assortment (“Share of Wallet”) Broadens Assortment (“Share of Wallet”)

esp ComplimentarY products that provide Integrated Solutionsesp ComplimentarY products that provide Integrated SolutionsAdvances in handling complex logistical arrangementsAdvances in handling complex logistical arrangements Anything encourages referral business Anything encourages referral business Tangible Justification for Premium PricingTangible Justification for Premium Pricing

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VALUE BUYERVALUE BUYER

Buys best Buys best ratio ofratio of

price-to-qualityprice-to-qualityHIGHHIGH

VALUEVALUEFROM FROM




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LowerCosts

Higher Pricesand Sales

Increase“Value”

Reduce“Waste”

Add “Good”Costs

Reduce “Bad”Costs

To Sell on Value, Know Your Costs…… and the Value They Create

Total Costs

Higher Profits

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Winning the Value-based BuyerWinning the Value-based Buyer

Buying Motive: Buying Motive: Best Deal or Price-to-QualityBest Deal or Price-to-Quality

Key Success Factor:Key Success Factor: Niche/ Customer Intimacy/FocusNiche/ Customer Intimacy/Focus

Key Indicators:Key Indicators: Market PenetrationMarket PenetrationLoyalty (Lift and Retention)Loyalty (Lift and Retention)


SEGMENTATION AND CUSTOMER VALUATION: SEGMENTATION AND CUSTOMER VALUATION: Devices to assist in profiling and valuating different customersDevices to assist in profiling and valuating different customers

DIFFERENTIATED OFFERINGS (Positioning):DIFFERENTIATED OFFERINGS (Positioning):Devices that enable us to discriminate the communication, distribution, pricing Devices that enable us to discriminate the communication, distribution, pricing

and product/service configuration delivered to different accountsand product/service configuration delivered to different accounts

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SOME QUESTIONS TO PONDERSOME QUESTIONS TO PONDER

Have you identified and targeted your “ideal” customer?Have you identified and targeted your “ideal” customer?

1.1. Who spends the most?Who spends the most?

2.2. Who costs the least to sell and service?Who costs the least to sell and service?

3.3. What is the ideal “customer experience”?What is the ideal “customer experience”?• Do they want “more” service OR a “different kind”Do they want “more” service OR a “different kind” of service?of service?

4.4. IF you sell to more than one type of account…IF you sell to more than one type of account…• How do you change to accommodate their different needs?How do you change to accommodate their different needs?• Are you “charging” for things the buyer doesn’t want or need?Are you “charging” for things the buyer doesn’t want or need?

5.5. Where are the greatest potential for “share of wallet” gains?Where are the greatest potential for “share of wallet” gains?

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Why It Matters : Three Numbers to Remember

Are you leaving money on the Are you leaving money on the table?table?

Spending too much?Spending too much?Chasing the wrong accounts?Chasing the wrong accounts?

1111 - 7- 7 - 3- 3

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FOCUS ON “EXECUTION”

The EXECUTION of the

MARGIN-SUCKING

MAGGOTS

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Ken WongKen Wongc/o Queen’s School of Businessc/o Queen’s School of BusinessKingston OntarioKingston OntarioK7L 3N6K7L 3N6

tel: 613-533-2367tel: 613-533-2367fax: 613-533-2321fax: 613-533-2321

email: email: [email protected]

© kenneth b. wong, december 2004 1 copyright k.b.wong & associates inc., january 2005 this...

Documents

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volume slide

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smokin good quality

insurance minimizers30

accidents segment