SPS Group Blog

He's Just Not That Into (Your Price)

2009-12-29T11:55:00.000-08:00

This morning's announcement of the Apple iPad (and the stock market reaction) got me thinking about the whole idea about prices. Prices, like, why don't you just tell us the price?

Here's a stock chart that demonstrates why knowing the price of an item is so valuable.

At 1:00 pm, Steve Jobs starts talking about this wildly anticipated new product. By 1:15, it becomes clear to investors that the specs alone are not compelling for a device that is rumored to have an MSRP of between $700 and $1,000. No one knows, so the stock price drops.

But look what happens after Steve finally reveals the price of the iPad about 45 minutes later. The value of AAPL stock rises $9 billion (!) as analysts and investors recalibrate the earnings potential of this new device based on a MSRP that is well below what was ~~feared~~ anticipated.

The importance of price as a context for a purchase decision is so powerful and yet so stubbornly ignored by the savviest marketers.

Case in point: I'm playing 'tag' with a demented sales rep from an on-line web information service. (I won't mention the name because, a) it isn't important, and b) he may be reading this.

The basic storyline: while I actually inquired about the company's services several weeks ago, I am now reluctant to spend time talking on the phone with this guy.

So, why, you may ask, did I bother inquiring in the first place? And why dodge his calls?

Glad you asked!

The product itself is (was) interesting - an XML feed that would allow my client's web-site to host a "find-it-local" service provider. There are four basic configurations based on the list you want. Not much to decide upfront. The website is self explanatory, except there is NO pricing information.

In my experience, no pricing info = too expensive. It is the basis of the phrase "...if you have to ask (the price than you can't afford it.)"

This following sounds a bit twisted, but I think prospects might impugn the motivations of a company that doesn't advertise its prices. If I were transcribing customer thought bubbles, they'd look like this:

If we tell you the price then you'd quickly see our value proposition is weak and you won't even make an inquiry to buy.
Therefore, we won't show you the price and we'll force you call or write just to find out.
And, just to maintain our advantage, we won't answer your questions even when YOU call us. We're just too darn busy to drop everything and speak to YOU.
But we assume you're never too busy to talk to US, so, to maintain our power position, we will call YOU when we feel like it. And only then will we answer your questions. This is better for us since we will (hopefully) catch you off guard...and not prepare all your questions. [hint: that's why we don't talk to you when YOU call US!]
If you're too busy to talk (or you try to screen us with CallerID), don't worry. We'll call YOU back when it's convenient for US.
And we'll relentlessly hound you until we close you."
When we finally talk, we'll quickly work down OUR list to determine just how much you have to spend. (Don't worry, we won't waste too much time trying to understand what YOU need...). Not surprisingly, your budget will seem inadequate.

I'm convinced potential customers like me are not alone in jumping to these "Costanza-like" conclusions. Rationally or not, I think customers choose not to even bother calling when they don't see pricing information. They will assume the worst (it costs too much; the process is too much of a hassle, yadda, yadda, yadda) and just move on.

To me an outbound phone call (without warning or permission) in response to a web inquiry is an old school failure. Today when marketing generates an inquiry, it is typically well informed and further down the conversion tunnel. People can do so much to educate themselves these days that every prospect is (or should be) much easier to close.

Sales calls are expensive. If you absolutely need a rep, why shouldn't you do everything in your power to make sure that that rep is closing virtually 100% of his or her calls. Why can't you answer a prospects basic questions (i.e., 'how much does it cost'?) first without subjecting me to the ABC call process?

This probably seems harsh (and perhaps a bit paranoid) but I think I'm onto something here. Return phone calls from quasi-intelligent, native-English speaking reps cost money and delay the close. It also signals that you have to pay a rep, which (in my mind), inflates the price.

So, instead of $50 per month for simple, self-configurable XML feed, I'm assuming the cost is going to be $1,000 to $2,000 per month for a "solution." And 95% of the cost of the "solution" is to pay for the sales commissions for this guy to call me back because the price wasn't on the website.

I'm no interested in wasting my time with the rep., and I certainly don't need the hassle of answering "profile" questions, simply because I want to know 'how much?'.

Old School vs. New Age

Today I think anyone in a marketing function should apply some common sense and use the website to signal at least some information about price. If you are selling highly customized services like, ahem, marketing consulting, then I can understand a certain reluctance to post standard, commoditized prices.

My rate, by the way, is $225 per hour. If you think that is a good value, please call me. If you think it is too expensive, there's no reason for either of us to call.

Selling a standardized product or service (like a user-configurable XML feed for my website) is different. If you provide a product or service that can be standardized or self-configured by the customer, then it should be. If not, ask why not. You could get change the game and rid yourself (and us) of the wasteful, old-school "always-be-closing" salesguys, endless unwanted phone calls, needless "profiling" and high commissions.

Think about it from a financial viewpoint: salespeople should be about leverage. A sales & marketing program should add margin by reducing incremental sales expense. Sales people that sit in judgement and withhold vital information from customers probably cost more (in lost sales and heft commissions) then they'll ever add in value.

Yes, old school sales reps might filter *out* undesirable business (from people like me who are cheap), but that business is "undesirable" only because of the high-cost sales process. Let your website inform on everything (including price) and let customers qualify themselves by drilling deeper into conversion tunnels before they're ready to buy. Then speak with them only if they can't configure and buy themselves (with a credit card).

Inquiries will thusly be more valuable (easier to close), which will shorten sales cycles and improve marketing ROI. Less commissions = less overhead = lower prices and (potentially) higher volumes or at least better margins. Plus a nifty entry barrier since your old school competitors can't match your prices with their high-cost sales process!

*SPS*

Luck Favors Prepared Minds

2009-03-26T08:48:00.001-07:00

I came across this broadcast PR placement (CNN) recently that references a "viral video" of the rappin flight attendant. Watch and observe the following corporate message points:

Customers: "Flying Southwest is (continues to be) fun and entertaining"

Recruiting:

"Southwest is a fun place to work"
"Southwest employees are empowered to apply creativity to their jobs"

Government: "We take flight safety seriously (by emphasizing passenger comprehension and attentiveness to pre-flight instructions)"

Based on the interview clip, I can only believe that this began as a naturally occurring placement (the customer uploading the cellphone clip to YouTube). However, the broadcast placement shows what happens with a savvy corporate communications department capitalizes on a serendipitous event.

Is your PR organization sufficiently smart, creative, empowered and prepared to capitalize on such happy accidents? If not, ask them why and help them get ready for the next rapper.

Six Ideas to Help Grow Your Business Right Now

2009-03-23T15:01:00.000-07:00

1. Clean Up (and Segment) your ACT! (of GoldMine)...

E-mail to your existing clients and prospects is the least expensive and most productive on-line marketing activity. For less than $0.03 per delivered e-mail, you can get a quickly remind a customer or prospective customer about a hot new product, a new business initiative, a recent PR story or simply to share an interesting article from a business publication.

As Woody Allen once remarked, 80% of success in life is merely showing up! Send that e-mail today.

2. ...And Check To Be Sure Your Mail Was Received

Everyone has a sent mail folder but how often do you check what happened to that e-mail (or vital e-mail solicitation) you sent last week. Too often we get consumed with the critical, must-respond tasks that we ignore or forget that we sent a few e-mails that never got a reply. Why? If no one responded, call a few friendlies on the list. Reach out. Be warm and think of something to say.

3. Write up expert commentary on a topical issue.

Blog is a fancy name for a commentary on a current issue. Millions already do, which speaks equally about the popularity of the technology as well as the problem of being oversaturated. If you do decide to start a blog, the best advice is...don't stop. Keep a pace of two to three posts per week. Be brief, be brilliant and be gone! If you can't do all three, hire a professional writer to write for you. Comment on industry trends, wax about business issues, help clients save money. Think about ideas and notions that keep your customers thinking about you.

To help get started, check out this recent article on blogging.

4. Rennovate/update your website...or create one (if you don't have one).

In the old days (five years ago), creating even a small but decent looking website cost money to hire designers and programmers. Today web publishing tools are free, thanks to content management systems (CMS) like WordPress, Joomla and Drupal. While not quite as easy as firing up a Word processor, web publishing today is much easier, to the entry barriers are lower.

A perfectly credible website can be had for less than $3,000 including graphics and programming. Content providers (a 21st century term for copywriter) can be had for $1 a word .

5. Upgrade your web marketing strategy

While the entry barriers to creating a website have gone down, what has increased is the importance of search engine ranking. It is not a sufficient marketing strategy to create a nice looking website. You must consider driving traffic to that site and then set and measure, specific performance goals.

If you sell products via the web, performance goals are relatively simple to understand. One primary goal is sales, and the performance goal is to either increase the average revenue per transaction or reduce the cost of customer acquisition.

However, if your business is not set up for on-line sales, you should still create and drive performance goals. Every site should carefully watch metrics such as unique visitors, average page views, bounce rates and keywords. These are basic metrics that determine your site's popularity, focus and quality. Goals could be simply to improve traffic (unique visitors), improve search engine results (keywords that describe your business with or without using its name), and content quality (average page views and bounce rates).

Here's an excellent primer on setting and measuring web goals.

6. Credit Monitoring in Reverse: Call big customers who have not ordered lately.

A customer may or may not owe you money, but subtle shifts in buying or call patterns can presage big changes in behavior down the road.

Customers who are happy, ordering regularly don't typically attract much attention. Things are running smoothly. But what about customers who haven't ordered regularly. We recently conducted a study for a B2B e-commerce company. Many of our clients' customers would reorder at regular intervals, generally once per week to once per quarter. However, more 60% of those regular customers had not ordered in more than six months! What happened? No one knew because no one was watching.

It is important to keep up relations with your current customers but it is even more important to monitor order patterns to detect...and prevent customer defections, unresolved issues or competitive overtures. Start today by looking at simple average order patterns. You can get fancy by looking at order size or historic patterns, either by individual customer or by customer's market. The point is: don't get blindsided by smoldering problems and passive aggressive customer behavior.

Mr. Brooks is president of SPS Group, Inc., a marketing and PR consultancy based in New York. He is also a member of the Manhattan Business Network.

What Does 'Managing Brand Integrity' Really Mean?

2009-02-03T09:41:00.000-08:00

Yesterday I had one of those 'V-8' moments during a client meeting that reduces something abstract into something incredibly real.

My client was hosting a presentation from an outside visitor. The group meeting was attended by seven client employees. The visitor sitting next to me had dutifully collected all seven client business cards and lined them up, roster style.

So far, pretty mundane. Since our company helped implement to logo, create the corporate credentials and style manual, I took more than a casual interest in the display.

Much to my horror, however, the ink and paper color of three of my client's business cards did not match the other four. WTF!

As it turns out, some people simply ran out of cards and dug into a hidden cache of old cards before we arrived. We quickly advised the client to toss out any pre-SPS Group printing.

The lesson in all this. When people talk about brand integrity, it is an abstract concept. I know plenty of ex-clients that are deeply suspicious of branding since it implies "high cost" marketing. True enough.

But the lesson here is fairly basic: when your team of executives meets a demanding client, will something as simple as mismatched business cards send the wrong signal about quality and consistency about your products or services?

Brand integrity means caring about consistency of the message -- all messages -- to deliver a uniform impression to a customer.

PR Disaster...or Triumph?

2008-09-10T17:36:00.000-07:00

From a recent Wall Street Journal Story:

Last month, the Indian government suspended a television advertisement for Axe men's deodorant, made by Mumbai-based Hindustan Unilever Ltd. The ad shows a man transform into a walking chocolate figurine after spraying himself with Axe's Dark Temptation deodorant. As he walks through the city, women throw themselves at him, licking and biting off various parts of his body.
The Ministry of Information and Broadcasting stopped the ad from broadcasting after receiving a complaint from a viewer who found offensive a shot of a woman biting the chocolate man's bottom.

Yikes! So, what would your PR dept. do if it got a call from the Wall Street Journal to comment about this story. Clearly a 'no win' situation in a chaste, decent and easily offended local market.

In a written response, Hindustan Unilever confirmed it will abide by the government's final decision. However, the company insisted that the ad wasn't intended to be inappropriate.

"Our consumer research showed the advertisement was humorous and witty in expressing the new fragrance's promise of being as irresistible as chocolate."

Wow!

In one fell swoop the company was innocent, contrite and subservient to the local tastes (and local authorities). Yet despite this genuflective tone, it still managed to deliver a shameless marketing message. Bravo!

Would your PR dept. be so prepared?

Read the entire story on WSJ.com

Good PR is Not Expensive

2008-08-26T09:50:00.000-07:00

It is rewarding to see how companies can take advantage of powerful internet PR tactics without spending themselves blind.

Today (August 26) Crutchfield created a press release which announces a “how-to” video on installing a flat panel. (The video is actually shot on or before March 14, so they’re practicing a little “repurposing” of content, which is fine.)

Trackback URL: http://www.prweb.com/pingpr.php/WmV0YS1FbXB0LUZhbHUtRmFsdS1Db3VwLVNpbmctWmVybw==

Crutchfield seems to have placed a big emphasis on consumer education as part of its positioning/marketing strategy. This technique allows that investment to pay off.

First, they get in-bound traffic from PRWeb, potential links/in-bound visitors from the social media tags from the release: Technorati, Del.icio.us, Digg, Furl It, Spurl, RawSugar, Simpy, Shadows, and Blink It.

As the content is circulated to news outlets, Crutchfield also gets potential news links from publications that reprint the news story which include valuable relevant inbound links (from presumably consumer electronic web sites, blogs and directories). Finally, they can expect some potential traffic from people who watch the video (posted on YouTube on August 20).

Total cost: $200 for PRWeb + 6 minutes unscripted/camcorder video). Not a bad return on investment!

Should You Have an ‘In-House’ PR Agency?

2008-06-13T12:34:00.000-07:00

I recently participated in a discussion among senior marketing executives about the “right” way to organize an in-house PR department.

In the 1980s Siemens USA ran a very successful in-house agency called “PRO” (Public Relations Organization). It worked very well, with high professional standards and high levels of (internal) client satisfaction. There are probably other examples, but sadly they’re few and far between.

(These comments are related to using PR for revenue-generation. Legal/social /political agendas should be centrally controlled and coordinated.)

Most in-house anything doesn’t work well. The arrogance, isolation and bureaucracy of a corporate staff person easily outweighs any alleged cost savings.

An outsourced service provider knows his job depends upon offering excellent value and service and treats his clients accordingly. Not always true with a corporate staff person person.

When the in-house agency is dictated by corporate, business units feel (quite rightly) cheated. “If WE’RE responsible for P&L, then WE should have full discretion over any resources used to support the business.”

On the other hand, most business unit managers don’t give much attention to the skills and quality of their marketing communications. My observation: the lower the contribution margin, the poorer the marketing. If there’s no big reward for big or savvy marketing, there’s little incentive to spend the money.

If your products and markets are fairly narrow, and you have a modest contribution margin, simply outsource PR to a small agency and exchange a fixed cost for a variable one. Then manage that agency for results, not effort, and trade up to a better agency if the current agency can’t keep up.

If you are a bigger company with exposure to multiple markets, an in-house PR operation might make sense. I strongly recommend you give the staff a market focus, and not product- or business-unit focus.

Market-centric PR managers are immediately customer-centric, which makes them a better resource for information and intelligence for all business units… and an eminently quotable source for the media. It also has implications for industry analyst and stock analyst/investor relations, since market savvy is more useful than product or technology savvy. Corporate can still control the message without holding it hostage.

Market focus demands product expertise PLUS relevancy for trends, competition and macro economics. These folks should also have a global role so that each person can be up to speed on all trends, wherever they may be.

The other key to making an in-house PR agency a success is to have a head of the corporate communications department who insists on delivering high service levels and has the mandate to fire people who don’t agressively respond to business units needs. If the corporate communications department has sufficiently earned a reputation for service and market insight, a business unit manager might willingly concede to allowing corporate to hire and manage the outside PR agency resource. Of course the business unit should pay for it!

Business units make the money; corporate is ALWAYS an expense to be trimmed.

For International, I reject the “pan-continent” agency model pitched by bloated “global” PR agencies. Centralized command and control is near impossible with multiple languages and cultures.

A better solution is to assign one marketing communications manager (not just PR) per country and one AGENCY per country. It sounds expensive, but most local agencies are inexpensive compared to “global” agencies, and most business units operate on a per-country basis for sales and costs. Then insist on company-wide standards and affiliations (annual or quarterly, in-person meetings + monthly conference calls) to be sure everyone knows what’s going on.

- SPS -

Looking for 'Mr. Google': Some thoughts on SEO

2008-05-08T09:26:00.000-07:00

The less something is understood, the more it's written about. So, to help fill the knowledge gap, I thought I would offer comments that reflect my basic understanding of what you can do to improve your ranking on Google...and other search engines, if they're out there. Please post any comments or corrections to help refine the topic.

The consulting services collectively known as “search engine optimization” or SEO are what most people mean when they’re discussing page rank. In today’s search-driven world, it is incredibly important, especially for popular & frequent consumer purchase items.

According to many search marketing authorities, as much as 75% of consumer purchases today start with an internet search.

What is ‘SEO’?.

Google has proprietary algorithms that rank and re-rank web sites’ content to help people find useful answers to questions. The most relevant (and popular sites) appear on page 1 or page 2. (If you don’t appear on the first few pages of search results (SERPs or search engine results pages), you have an SEO problem.)

Since no one knows exactly how Google works, many, many consultants are in the business of charging clients to make educated guesses.

Many companies (and unscrupulous SEO consultants) spend inordinate amounts of time plotting and scheming to get Google to rank one site above another. Many Google employees spend inordinate amounts of time trying to outsmart unscrupulous SEO companies. Google usually wins.

Because Google is a thinking, evolving organization with its own personality, it is easy to anthropomorphize it into a living being -- a benevolent despot if you will -- called "Mr. Google".

I’m not really interested in the cat-and-mouse games between SEO firms and Mr. Google. Most of that effort is zero-sum and pointless activities aimed at achieving temporary and unsustainable advantages.

But there are some basic truisms of web site design that you should know that will help Mr. Google find your site and rank your content. None of it is particularly esoteric or unusual, but it is another wrinkle in the marketing communications puzzle that you need to manage.

To attain a high SERP rank, you must convince Mr. Google that your site – and all its pages – are highly relevant to the given search term.

The key phrase here is given search term. This is where a good SEO specialist can help you identify the range of search terms (keywords and phrases) that will be most associated with your company and your marketing strategy.
These keywords and phrases must appear prominently throughout your site for Mr. Google to acknowledge and recognize your site as relevant.

Content relevance is straight forward: does each page have the correct “concentration” of the most likely search terms on each page. Repeating key terms 3-5 times is about right. You can see this concept by searching on some key terms like “biodegradability marketing claims”. When you see the search results, view the “cached” copy here.

Examining the top three ranked sites and you will see highlighted keywords. This is one clue about the “secret sauce” for search ranking. Notice the top three search results are from .gov domains.

This makes for web copy that is, at times, cumbersome and repetitive.

Agency: “Here’s your search-engine optimized web content.”
Client: “This is awful. Why do you say the same thing over and over again using different words?”
Agency: (sigh)

And yet it is valuable to use different terms since many people won’t search for you using the same phrases. It is NOT the best way to write a brochure or an ad but it is preferred when writing for the web.

PageRank is a bit more difficult to describe but it comes down to:

1. Link Popularity: How many sites link to YOUR site?
2. Link Relevance: How many of those links are from relevant sites (relevant to the search term)?
3. Link Strength: The most important criteria: how many of those relevant links are popular or authoritative (widely linked TO themselves)? .edu and .gov are particularly prized since they are sites less likely to be “commercial” and thereby objective and above corruption. (Ha!)

The rest of search engine optimization comes down to common sense (and a bit of coding):

1) Is the text on your site easy to read by Mr. Google’s robot (“Googlebot”). In other words, does each page on your site use Adobe Flash illustrations and code before text content? If so, Mr. Google will get bored and distracted. This is loosely known as “spiderability”, so-called since Mr. Google’s robot is known as a web spider (for crawling all over the world-wide web. Get it.)
2) Are important and relevant phrases highlighted in bold or Headline fonts?
3) Are pictures labeled with descriptive & relevant phrases? (Known as “alt-img” tags, these phrases should contain keywords and phrases as well. (Alas, Mr. Google’s robot is blind and can’t understand or appreciate fancy animations or pictures.)
4) Are the words you use to describe your content the same words most people use to search to find your content? Do you try to use different phrases, even though they are presumed to be repetitive?
5) Are you in business temporarily or for a long time? Is your domain old or new? Will it expire in one year or ten?
6) Do you make Googlebot bored (by making it read the same copy over and over, week after week), or do you give him something new to read every time he visits?

Self- Analysis and Self-Help

Here are some thoughts about evaluating your place in Mr. Google's world:

1. Check your page rank. Overall, PageRank is like a Richter scale, sort of logarithmic: a PR6 is ten times better than a PR5. Most competent B2B sites should be at least a PR4~5.

2. Check your in-bound links, especially from .edu and .gov domains. Do what you can to legitimately attract links backs from employees of government or academic institutions.

3. Check how many pages of content are indexed in Google. More is better. Aim at creating new, fresh content on a regular basis. The content should be filled (but not stuffed) with relevant keywords. The page title tags should also be directly related to the content.

Recommendations To Improve Your Page Ranking

1) Actively solicit everyone you know to link to your home page, specific articles within the site, or both. Bribe or threaten anyone from authority sites like from government or education. Those links are the most “prized” in terms of PageRank.

2) See about getting your site listed in on-line directories on topics directly related to your business. These links will aid in your relevancy score.

3) Check to make sure your site's news release section offer a plain text version of all your press releases. While Google can index PDFs, it has an easier time with plain text.

4) Put your Biography on the “About us” section. If people don’t remember your organization, they will Google your name. Be found.

5) Blogging is like flossing and Listerine. You hate to do them, but they’re most effective if you do it daily.

6) Do more press releases on topics, especially if it is something related to pending legislation. This will get you and the organization in the news and get more traffic. There is a service called http://www.prweb.com/that is pretty good at getting news out to multiple sources.

7) Introduce yourself to other bloggers in your industry, both upstream and downstream from your markets. They will write about (and link to) your site, helping spread your marketing messages while building relevant back links and traffic.

8) Submit your website to the DMOZ directory (http://www.dmoz.com/). This is a human-edited directory that tries to list to high-quality, authoritative websites. If you are accepted, you are considered to be a high-quality, authority website, with all the benefits and privileges that title confers. The downside is that, because it is human edited (and free), DMOZ is swamped with thousands of submissions; acceptance, if it comes, may take years.

If you have $299, a faster alternative to DMOZ is the Yahoo Directory. In seven days Yahoo will review your site and (generally) post it in a highly-ranked directory. Perhaps not as prestigious as DMOZ, but certainly a good way to improve you page rank. Be sure that you are not already listed, since fees are non-refundable.

The website http://www.seomoz.org/for some tools related to “spderability” of your site.

Google itself offers a powerful tool that allows you to see many useful items about your site. Check out: http://www.google.com/webmasters/#utm_medium=et&utm_source=us-en-et-bizsol-0-finderB-all&utm_campaign=en

These are some basic concepts and tips that will help make your site rank better in most searches. Note this is NOT a graphic design exercise but a content exercise. Most web designers will be able to give you a highly attractive site but the long-term marketing performance depends upon sustained efforts in content development and careful attention to detail in search terms.

-SPS-

Digitize Me: How Digital Technology Commoditize Your Products (and what you can do to prevent it).

2007-10-13T09:11:00.001-07:00

marketing strategy,commoditization,positioning

The following is a letter to the editor of Widesrceen Review, originally published in the September 2007 edition, and reprinted here with permission of the publisher, Mr. Gary Reber.

Gary:

Kudos to your recent editorial on the state of the industry. Many of your sentiments resonated very loudly with me since I personally witnessed market impacts you described. I have since left DWIN Electronics earlier this year and found a niche consulting with other manufacturers on marketing and sales management issues, product development and business development.

I would add three more trends that have made a large impact on our industry:

Digitization of display technology: back in the day, high-end display manufacturers were revered for their ability to create a high-quality image from a relatively poor quality NTSC analog signal. The early pioneers who mastered the black art of analog video were rewarded handsomely for their skills. Today, with high-quality digital HD signals and digital imaging technology, many more companies can assemble a chipset that will deliver very good quality at a very low cost. More competitors usually mean lower prices.
Influence of Chip Manufacturing: a related trend is the economics of semiconductor chip (and LCD panel) production. The “race-to-the-bottom” phenomenon reflects the fact that large-scale investments are required to build a chip or panel “fab” (fabrication facility). When a company has billions of dollars of capital at risk, it is essential to seek the highest possible unit volumes as soon as possible to recoup costs. As prices decline, demand usually increases, so there is a strong built-in incentive for the chip company to lower prices. The chip company benefits by earning back their billion dollar investment. The consumer benefits from very low display prices with very much improved quality. Small manufacturers and integrators get squeezed in the middle.
Convenience vs. Quality: In the audio market, consumers (especially younger buyers) overwhelmingly prefer convenience (IPod) to quality. (The popularity of products like Apple TV, YouTube, cellphone video and IPTV indicate a similar trend in store for video). Consumers do appreciate high-quality video and audio, but, I believe they are making rational trade offs: ease-of-use and portability versus superior quality.

So, what’s the solution?

First, small manufacturers with legitimate engineering and quality advantages should price products at appropriate levels and resist competition from low-priced brands. (BMW, Mercedes and Lexus all thrive despite the presence of Hyundai, Kia and Daewoo). Small brands should offer high-quality services and support, for consumers and dealers alike. Small brands should enforce premium pricing and position by being more selective in dealer recruiting. And small brands should be aggressive at weeding out poor performing, marginal dealers that don’t have the right qualifications, or the technical ability. Dealers with insufficient capital, weak staff training and inept customer service drain resources from small manufacturers.

Second, if manufacturers want to maintain premium pricing, they should not distribute products indiscriminately. If you are going to pursue the high end, your business plan should have realistic unit volume expectations. Unrealistic forecasts create pressure on sales organizations to sell to marginal dealers to “make numbers.”

Third, branding is important, but dealer education and training is crucial for success. Most small brands don’t have enough money to launch an effective consumer branding campaign. It is pointless to try. I recommend my clients spend at least as much on dealer education and support programs as they do for consumer branding. In fact, many consumers are so overwhelmed by consumer electronic brand choices these days that they seek out high-end dealers to avoid making a brand decision! They depend upon the dealer’s professional judgment to make the call and recommend the right solution. Brand investments (like ads in WSR, brochures, in-store displays, and a good website) should be made in a way that reinforces and support the dealer’s recommendations.

Dave

David S. Brooks, President
SPS Group, Inc.

Springfield, NJ 07081
(973) 255-1105
(973) 255-1109 (FAX)

www.spsgc.com

Gasoline at $1 a Gallon: Sales Miracle or Marketing Failure?

2006-12-06T20:15:00.000-08:00

We work with a client in the consumer electronics industry. Recently ASP (average selling prices) in a certain category have collapsed...down almost 80% in 18 months. Despite large increases in unit volumes, the effect of lower prices have actually caused aggregate sales (and margins) in the category to decline. Smaller, niche players are being edged out by larger, higher-volume competitors.

Since there is quite obviously no cooperation among competitors, the root causes are predictable:

1) Indifferent/indiscriminent distribution "strategies" that emphasize short-term factory volume over long-term channel health;.
2) Too many competitors chasing too few customers;
3) Sceloric supply chains (especially among offshore suppliers) that can't adjust production quickly to avoid inventory gluts; and,
4) Fundamental misunderstanding of pricing elasticity in the category.

The consumer electronics industry has always been guilty of sins #1-3. Rabid consumer fascination with "new" gadgets will always breed a certain amount of waste. chasing the next "hot" product.

Sin #4 is simply a sin of hope over logic. The product in question -- front projectors for installation -- is an interesting case. Buying and installing a front projector for home theater requires a major commitment by the customer: a special, dedicated room, accoustics, seating, sound, etc. It is not a casual decision and certainly not something stimulated by low prices on one component -- the projector.

So, while the ASP of a high definition front projector has plummeted from $12,000 to $3,000, units sold have not quadrupled to at least break even. And, since volumes have not exploded, assumptions about contribution margin have likely disappointed all competitors.

New applications and segmnents have been created because of low prices, but dramatically lower margins are increasing risks for marginal players.

What's this got to do with gas? Imagine if ExxonMobil (or OPEC) suddenly lowered gasoline to $1 per gallon. Obviously there would be an immediate surge in sales. Perhaps other competitors would follow suit to avoid market share losses.

After a month or so, aggregate sales (for all competitors) would plateau, then plummet. How much gas can people use? Do they have storage tanks in the garages? Will they drive longer distances because gas is cheap?

Once the mistake was caught, raising prices would be like recapturing lost innocence. A quaint idea but largely improbable.

Are you selling gas for $1 a gallon? Can you walk away from market segements ruined by ignorant, irrational competitors? Can you embrace profitable niches while ignoring the siren song of unproven unit volume forecasts?

Price wars are legitimate tools to drive out weak players and grab marketshare. Happens all the time. But pick your battles carefully. Price wars for products with relatively inelastic demand, infrequent purchase frequency, and relatively high marginal cost is not a winning strategy.

-sps-

Chief Branding Officer: The new role for today's CFO

2006-11-26T15:17:00.000-08:00

Senior corporate and financial executives are today focused on a defensive game (rigorous financial controls, Sarbanes-Oxley compliance and a cautious, almost limited approach to investor disclosure.)

Of course, corporate financial integrity and the resulting confidence it inspires among investors is a good thing.

Yet even in this current conservative accounting climate, management has an opportunity -- even an obligation - to focus attention on actions that maintain and grow the value of a company's intangible assets.

Maximizing corporate valuation goes well beyond solid operating performance, transparent reporting and shrewd management of a portfolio of hard assets. Brands, reputation, organizational culture, business strategy, intellectual property and core competencies are all vital "soft" assets that are not valued on any balance sheet. Effective corporate management teams consider and manage the value of soft assets and zealously and professionally as their tangible assets.

Proactive, targeted campaigns to promote these intangible assets can enhance the overall effectiveness of current operating plans as well as helping improve company valuation. In a sense, this is a corporate finance responsibility, not a mere marketing task.

CFO's can play a crucial role in this process by forging alliances with marketing departments. The "soft" artists (creative and innovative types) are greatly helped and encouraged by the patrons (CFOs). CFOs should relish this role and provide a mandate (senior management endorsement) and structure (accountability and metrics).

A brand (or corporate reputation) is one of the few balance sheet items that can increase in value through shrewd management and active cultivation. CFOs can lead this process by creating a corporate culture that measures the value of a brand and encourages all employees to care for it as they would any other asset.

Do you suffer from 'margin myopia'?

2006-10-20T10:56:00.000-07:00

management,margins,marketing,gross margins,margin errosion

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.

-sps-