We come across plenty of “Sales & Marketing” functions in the world of small business. Most people understand “sales”, but “marketing” is synonymous with advertising and PR and seen as an expensive luxury.
The best definition of marketing I've ever come across is:
“Ensuring that you're selling the right thing to the right customers for the right price”. This sounds simple enough, but in practice businesses sell what they like to produce/have always produced to good, bad and indifferent customers for a random spread of prices based on historical accidents
The basic technique of marketing is to segment the customer base and deal with each segment differently, focussing most attention on the segments that produce the most profit: never attempt to be all things to all men. The reward should be sales growth and increased profitability.
I rather naively assumed that big businesses do better, so I was pleased to read the story in May's HBR by Francois Jacques. He joined Lafarge, the world's biggest cement company, in 2001 as head of marketing. The challenge to market a commodity product in a highly fragmented market is very similar to the small business world we recognise. Worse still, Lafarge still sold man to man (golf or fishing) with marketing being for wimps.
Just getting the organisation to accept that it needed marketing is a good case study in big company consensus building. However, I'm going to focus on the marketing itself.
Jacques first step was to define the customer segments from scratch, rather than using the varied definitions already in place. He found that customers could be segmented on their buying behaviour (price driven, relationship driven or performance driven) and also according to business sophistication (whether they had their own quality control labs, for instance). As Lafarge is a big operation (45 business units), the marketing approach was tested on 4 units, one of which was the (mature) UK market. As expected, segmentation analysis showed that customers in the same segment were paying different prices for the same products bought in the same quantities – some customers were getting huge discounts. The quick solution was therefore to set minimum prices and bring discounting under control. The effect in the UK was a 1% improvement in the margin over a 2 year period.
The other side of the coin was that customers in different segments were not being treated differently. Systematic re-pricing in the UK was expected to improve margins by 2.4%. However, once you start treating customers differently, it makes sense to measure the result. For example, Romanian customers were happy to accept a harder line on pricing as long as ordering and delivery processes were improved. This then lead to the development of a KPI to measure how often deliveries are “on time”, “in full” and “invoiced correctly”. These are not things that you would normally include as marketing, but they are central to the customer experience.
Jacques' efforts added $6m to the bottom line in the first year alone and have contributed $150m to date. Who says marketing is a waste of time?
As condensed from an article entitled “Even commodities have customers” by Francois Jacques in May’s HBR. If you get the chance, read the full article.
Contact David Lloyd at Duckett: email@example.com