Are you a successful marketer because you sell high-margin products?
Many marketers measure the success of their programs by the gross profit margin of individual products.
But is this true? Margin myopia happens when companies focus too much on products individually and miss the larger view.
Sure, everyone wants the prestige of high-margin products. But gross margin is an aggregate term of all product sales less direct and indirect product costs. And selling only a few, high-margin products won't equal success if weak sales volume is insufficient to overcome overhead and operating costs.
Even if you are a small manufacturing company with limited SKUs, you are selling a broad range of tangible and intangible products.
What are "intangible products"?:
- Elimination of pain (since your product presumably satisfies some need, real or imagined).
- Reduction of stress (from a well executed, accurate and hassle-free purchase transaction)
- Satisfaction and ego gratification (from the customer making a purchase decision and giving you money)
- Status and prestige (recognition of peers and neighbors for a good purchase decision).
You get the idea.
Savvy branding, snazzy marketing communications and snappy industrial design all help justify high prices for tangible products. But lousy customer service, sloppy product quality, bureacratic credit and administration, or unreliable delivery (the intangible products) conspire to deflate margins and drive away customers.
Things get worse when declining or chronically low sales volumes put management on the defensive. Being cheap (cutting the value of intangible products) to preserve high gross margins is a losing game.
The best way to avoid this trap: embrace the view that you are managing a portfolio of tangible and intangible products. You must manage both categories of products to be successful.
Are you suffering from intense competition? Create "new" products by revamping your customer service policies, credit terms (offering creative finacing options), extended warranties, expanded training, improved documentation. Search for customer pain points and aggressively solve them.
Don't get trapped by margin myopia. Expand your thinking and manage the quality, design and delivery of all your products, tabgible and intangible. Your accountant will thank you for it.
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