THE PITFALL OF WHOLESALE NETWORKING TO RETAIL PROSPECTS

Business DiscussionThe verb “network” means to meet or interact with people for the purpose of making contacts and exchanging ideas. Contrary to popular belief, its primary goal is not to generate sales! It is, quite simply, to get to know people, and to have them get to know you. Sales are just one of the benefits that might result from increased exposure.

I am a strong advocate of networking. I was introduced to several significant vendors and business associates at networking meetings. That includes my insurance agent, social media consultants and two business partners. However, while I have provided leads that resulted in other people closing sales, I can think of only one small client engagement I gained through networking.

Why is that?

It is because my ideal client prospect is unlikely to participate in what I refer to as “retail networking” groups. My best prospects have been established in business for years; are generating annual revenue of several million dollars, have fifty or more employees, are adequately funded and have highly specialized strategic needs beyond their ability to address internally.

Furthermore, they have progressed beyond the usual concerns of new ventures, the greatest of which is simply generating sales. They recognize and value the need for more sophisticated services, and are able to pay to meet those needs.

That profile is not a match to the typical retail networking group. A business targeting start-up operations, solopreneurs, small average sales and/or “main street” business and consumer needs is far more likely to generate sales through networking groups. However, a reality of mining for customers in this environment is high turnover and high marketing costs. Statistics show more than 35% of a typical group’s participants will not be in business in a year, and perhaps as high as 90% within five years.

So if wholesale (or large scale) networking to retail groups is not an alternative for marketing your B2B product or service, what is?

There are probably as many correct answers to that question as there are small businesses. I will share several things that have produced business for me in a future blog.

WHAT A CPA KNOWS ABOUT MARKETING: MORE SALES AREN’T ALWAYS THE ANSWER

There is an old joke about a marketing executive who bought a truckload of melons from a farmer for $1 each. He advertised them for sale at $0.85. When his CFO asked how he planned make a profit, he proudly replied, “Volume!”

Does that sound absurd to you? Surely, the story must be a throwback to the days before we had MBAs and complex modeling systems to direct our every move.

May I be honest? I have a degree in accounting, and have done graduate work in finance, not marketing. I have never worked in a purely marketing or sales function. Any marketing professional worth his salt has probably forgotten more on the subject then I will ever know. That explains the often-asked question of why a CPA wrote a book called Highly Visible Marketing, and blogs about marketing related topics.

I do not see myself as writing about marketing; at least not as the average person understands the word. I write about a business approach that is foreign to many marketing professionals. It is largely unheard of among small businesses.

I call it marketing accountability.

I focus clients on improving cash flow by growing the bottom line, not the top line. It is that focus that adds value.

Too many business people think like our melon-selling friend. They assume they can make money on any product or service, if they can just sell enough.

As obvious as it may sound, there must be a reasonable and measurable relationship between marketing costs and the expected cash flow and other benefits.

Without that mindset, there is no perceived need to compare costs and benefits. Little or no effort is spent matching expenses and revenues until someone asks why the cash balance is circling the drain or vendors start calling asking where their payment is.

Do you think I might be exaggerating the importance of accountability?

A 2005 study titled Small Business: Causes of Bankruptcy by Don B. Bradley III and Chris Cowdery of the University of Central Arkansas reported that of businesses in their study that filed for bankruptcy, 58% admitted to doing “little to no record keeping.” I assume a business that keeps no records has no ability to compare costs and benefits, let alone manage them.

I encounter this “I’ll make up the difference on volume” mentality with alarming frequency. One of those encounters was the cathartic event that led me to develop my marketing accountability approach.

I had a growing client who had reached $5 million in sales. Unfortunately, losses were growing even faster. They were in desperate straits, virtually out of cash. They thought the answer was to slash expenses and eliminate staff, while continuing to grow sales. In other words, they followed conventional business thinking.

I discovered they were losing money on their largest customer class, where all marketing efforts were directed. Much to their surprise, I did not suggest eliminating a single position. On the contrary, I recommended hiring a marketing person for the profitable customer base. I then directed  procedural improvements to make it easier for those customers to do business with my client. Finally, I suggested an immediate reduction in unprofitable customers.

Even more alarming is how often clients I assume are financially astute fall into the same trap. I worked with a very large company that started a bonus program on their entire product line. The problem was they lost money on some products, primarily because they were underpriced. The bonus structure did not differentiate between products. When sales of already unprofitable products increased, the added cost of bonuses produced a “double whammy” on the bottom line.

An appropriate tactic would have been to reward the sales force for increasing total sales, while also decreasing sales of unprofitable products.

As both examples illustrate, growing sales and increasing profits are not always synonymous. Admittedly, decreasing sales to improve cash flow and profits sounds counter-intuitive to someone lacking a firm grasp of their cost structure.

That is no excuse.

Knowing how to sell something without understanding the economic impact of those sales is a recipe for disaster. Those responsible for a promotion should also be held accountable for its results, good or bad. The ultimate result companies must focus on is how much cash a promotion puts in the bank. It really is that simple!

Does my marketing accountability approach work?

Here is what the client in the first example said, “While many companies are looking to cut back on employees as their first resort to handle cash shortages, CFO America was quick to point out that the right mix of customers was the crucial area of concern. They also were quite helpful in directing us in some marketing improvements that we could make. We are now in the process of implementing changes that are destined to enhance our financial picture.”

I leave you with that quote.

© 2011 by Dale R. Schmeltzle

CFO America: Your Cash Flow Optimization experts

You Can Have Any Color You Want, As Long As You Want Black (Part 2)

Today I conclude the article on product driven versus market driven companies. I began by discussing the cultural differences between the two. Product driven companies concentrate on achieving and maintaining technical superiority. Market driven companies devote resources to brand development and customer communications.

Companies and industries sometimes attempt to adapt their marketing strategy in response to changing competition and other market forces. For example, conditions slowly but dramatically changed for the entire American automotive industry over the next 50 years. Detroit’s response to the 1973 oil embargo was a textbook case of a failed attempt to adapt. Faced with the first ever non-wartime limit on the availability of cheap gasoline, the American consumer suddenly became very conscious of gas mileage.

At the time, Japanese and European companies dominated the market for fuel-efficient sub-compacts. American manufacturers’ knee-jerk response was to jump headfirst into a market they had ignored until recently. They stepped up production of the notoriously undependable Ford Pinto (voted the worst car of all time), the Chevrolet Vega and the AMC Gremlin.

Detroit’s failure took a personal toll on an entire generation of consumers. My first car was a red, white and blue Pinto. It was a cornucopia of expensive mechanical problems, unrelenting frustration on a 94-inch wheelbase. I sold it just before a massive recall for an exploding gas tank problem that would eventually cost Ford millions of dollars in legal settlements.

My next car, a Toyota, sparked a love affair with foreign cars that continues today. It was 30 years before I bought another Ford, a pickup truck for my son. It took almost as long for American manufacturers to overcome the image of producing inferior cars. It remains to be seen whether they will ever regain the world market share they once enjoyed.

How have things changed since I bought that damn Pinto?

A national chain of men’s discount stores advertised, “An educated consumer is our best customer.” For a product driven company in 2011, an educated consumer might be more aptly described as their worst nightmare. Service industry executive and strategic planning expert Michael O’Loughlin recently summarized the reason. He said, “Thanks to the Internet, the consumer has come to believe that no concessions are ever necessary. They expect unlimited choices in meeting their needs.”

Potential customers are only a few clicks away from a myriad of rival goods and services. A consumer with a smartphone can compare competitors’ prices on the spot. Any business, even the smallest local operation, ignores those powerful market realities at their own peril. Broadening your product line or services can help fend off competition by better addressing market needs, and improve customer retention in the process.

The men’s store chain recently filed for Chapter 7 bankruptcy. One analyst said they had failed to keep up with the increasingly competitive off-priced clothing market.

My final point is that few successful companies employ an entirely one-sided strategy. They operate along a moving spectrum on which there are few absolutes, and no strategy guaranteed to bring success or failure.

Consider Ford one last time. Product limitations notwithstanding, they still managed to sell over 15 million units between 1908 and 1927. At one point, half of all the cars in the world were Model T’s. That production record stood until the Volkswagen Beetle finally surpassed it in 1972.

The correct strategy for your business is the one that is executable within the constraints of your cost structure and marketing budget, and that produces the highest net cash flow given all the relevant factors at work in your market and your competition.

I began this article with an old quote. I end with another. A marketing adage says, “You have to sell from your own wagon.” It refers to a bygone era when merchants plied their trade by pushing handcarts up and down urban streets. The adage may be true. However, today you get to decide how big your wagon is, and what products or services it carries.

Go forth and sell!

 © 2011 by Dale R. Schmeltzle

Customer Service #101: Buddy, Can You Spare a Sandwich?

I had an experience last week I feel compelled to share. It was Friday night, the end of a long week. After fighting construction traffic for 45 minutes, I stopped at a national fast-food chain. I ordered three sandwiches. Mind you, I didn’t order drinks, chips or dessert, just three sandwiches. The bill came to $27.14. Since I didn’t have much cash on me, I handed the salesclerk a credit card. I was informed their “system” only allowed credit card charges up to $20.

Since I have previously  bought takeout from this chain many times without encountering this problem, I’m not certain whether it is a new corporate policy, a misguided rule imposed only by this franchise, or if the employee was simply mistaken.

Regardless of the reason, it points out a common business failure. The problem is creating unnecessary obstacles for people who might otherwise become loyal customers.

I have written many times that competition is based on price, product or service. Those are your only three choices.

Perhaps spurred by the current slow economy, price competition is clearly the most promoted basis of competition. It is especially prevalent in the food service industry. Witness Applebee’s “Two eat for $20” or Pizza Hut’s “$10 any pizza, any size, any toppings” campaigns, just to cite two.

Low prices are completely objective, easily communicated and quickly adjusted as necessary. Unfortunately, while coupons, discounts and sales may bring more customers through your door, they always cut into your gross profit. You simply cannot consistently sell a product or provide a service for less than your cost and survive!

Price competition also presents a more immediate challenge. In a high-tech world where any customer with a Smartphone can quickly determine if your competition is offering a better price, the strategy is certainly no guarantee of marketing success. The risk is escalated if low-price guarantees are common in your business. Furthermore, if someone purchases only because you are the cheapest available option, he or she is unlikely to develop any customer loyalty unless you are always the low-price provider. Few businesses are large enough or profitable enough to be in that enviable market position.

Competing mainly on product also carries risks. Even if you think your product or service is unique, the reality is there are probably countless options that are close enough to serve as a substitute for customer needs. A classic example is the difference between a Lexus and a comparably equipped Toyota that sells for thousands of dollars less. Product competition is also complicated by the widespread availability of on-line shopping and free shipping.

That leaves service as the only basis of competition on which your business can truly distinguish itself. It is also the only one that doesn’t have to increase your operating costs, or cut gross profits. A friendly smile and prompt, courteous service cost nothing! More importantly, superior service cannot be instantly matched by the competitor up the street.

Superior service encompasses the entire customer experience, starting with the moment they enter your facility or contact you. It continues until the product or service produces the level of satisfaction the consumer expected. It includes point-of-sales services such as allowing credit cards, answering questions, gift-wrapping and perhaps even walking packages to their car. It also includes after-sale services like satisfaction guarantees, generous refund policies and warranty service.

What’s the lesson here? Ask yourself two questions. First, are your policies and procedures primarily designed to make your life easier, or to increase customer satisfaction? Secondly, are your employees adequately trained in those policies and procedures, and are they consistently delivering a customer experience that will keep shoppers returning year after year?

I’ll end with a quote from Mark Cuban, billionaire owner of the Dallas Mavericks. He summarizing the essence of Customer Service # 101 with this, “Make your product easier to buy than your competition, or you will find your customer buying from them, not you.”

© 2011 by Dale R. Schmeltzle

Keep It Simple, Sweetie!

One of the pitfalls of marketing is to “over-think” your strategy. With over-thinking comes the risk of over-spending, a quandary sure to draw my attention.

One of today’s suggestions is so simple and inexpensive you may have overlooked it, even though you have seen it used hundreds of times.

Put a bowl or attractive container next to your cash registers and invite departing customers and guests to drop their business card in for a chance to win a free meal, store gift card or something else of value. This suggestion can be very effective in adding names to your mailing list. It obviously works only in situations where customers visit your physical location.

A modern-day variation of this time-tested marketing tool is to allow participants to post their contest entry on your Facebook Fan page. This addresses the situation of not having a business where customers visit your facilities. The catch is that to post on your wall, they must first “Like” your page.

Contests can also be used to encourage customers to return to claim prizes. Create a sense of excitement. Promote them in your email campaigns, blogs, social media, etc. by announcing winners, next month’s prizes, and so on. A slight variation of this simple marketing strategy is to select winners from customers who complete evaluation or survey forms.

Above all, conduct your contest with flair and elegance, or do not do it at all.

Dear Diary, I Lost Another Customer Today

It is easy to tell when my car needs gas. There is a gauge on the dashboard. If I am not paying attention, a light comes on when the fuel level gets too low. Finally, the car will simply stop when the tank is completely empty.

However, my car (unlike more sophisticated models) gives no warning when I need an oil change. Even if your car displays remaining oil life, you must first remember to scroll through the display periodically to check it. Jiffy Lube, Kwik Kar and other oil change franchises solve that problem by putting a small transparent sticker on my windshield to remind me at what mileage I need to change oil.

Doctors, dentists and veterinary clinics have long sent reminders when annual checkups are due. Same principle!

Most consumer products that require periodic maintenance or replacement give no obvious warning. Filters on furnaces and air conditioners, and batteries in smoke detectors and watches all come to mind. Many things around the home and office including HVAC equipment, computers, alarms systems, pool equipment and so on all need periodic service for optimum efficiency.

If you sell replacement parts or service on products that fall into this category, create a diary system, a sticker or something to remind customers to schedule a service call.

Here are some additional thoughts to keep customers coming back to you for maintenance and service work.

  • Have the customer indicate how they want to be contacted for a reminder when they initially purchase the item or sign up for service. Provide several options such as email and phone calls. Both are cheaper and more likely to solicit a favorable response than mailing a card. Whatever diary system you choose, it is sure to improve customer retention.
  • Create a sense of urgency by including a limited-time special offer with the reminder. A 15% discount, a free month of service or other incentive will discourage customers from procrastinating or purchasing services elsewhere.
  • Everyone who subscribes to magazines has received next year’s renewal notice within a few months of renewing the current year. In some cases, the marketing strategy may be to hope the subscriber forgot they still have 10 months remaining on the current subscription. However, the publisher usually offers substantial discounts to renew early, especially if pre-authorized to charge your credit card at renewal.

The same idea applies to remind clients to renew annual contracts, maintenance agreements and so forth. Do not wait for the customer to contact you, and do not risk losing a sale simply because you forgot. Again, offer customers a discount or an extra month on the contract if they renew by a specified date.

Enjoy the long weekend as we celebrate the unofficial end to summer and our 118thannual Labor Day. Thank you to our Canadian neighbors who came up with the idea ten years before Grover Cleveland copied it!

© 2011 by Dale R. Schmeltzle

 

It’s Nice to be Lucky

Someone recently asked why I prefer consulting to corporate positions. The truth is I am not sure I do. However, the question got me thinking. That got me writing, so here I go.

A number of years ago, family circumstances forced me to leave the corporate arena, where I had established a 25-year record of success. Consulting offered the only viable opportunity to feed my family.

Back then, the World Wide Web as we called it was still in its infancy. Only large companies had websites. E-commerce was virtually nonexistent. Facebook would not be introduced for another four years. My personal computer provided email access. However, many people still lacked an email address, especially at home. I cannot recall whether I could attach documents. I suspect not. Cell phones typically cost hundreds of dollars per month, largely due to a now antiquated practice of assessing “roaming charges” for long distance calls. Blogging? That sounded more like something my Rottweiler does after she eats grass than a mass communications tool.

I did not have a marketing clue, let alone a marketing plan!

What I did have was a telephone. It attached to the wall with a long wire. You may remember the device, having seen one in your grandmother’s house or perhaps a museum. It could serve as a fax, but only if the recipient also had one. Although it sometimes seemed to weigh 500 pounds, I was occasionally able to muster the strength to use it.

The third phone call I made landed a million dollar client. It also launched what became a 15-person consulting firm. You can choose to characterize the call as pure dumb luck, divine intervention or anything in between. I will find no fault with whatever label you assign. The bottom line is consulting supported a comfortable life style for several years, while allowing me to address challenging family issues.

A decade later, circumstances beyond my control again forced me into consulting. Since then, I have defined my value proposition (I had no idea what that was 12 years ago) by offering cost effect advice to small and medium sized businesses. My advice is usually very specific, lengthy and often somewhat technical.

Today I will depart from my recent path. Instead, I will present two brief and decidedly nontechnical suggestions. I share both from very personal experience.

1. Mr. Tom Lewis, an online marketing consultant from “across the pond” put the whole concept of small business marketing in a rather interesting and concise perspective. He said, “All these new media buzzwords like social networking and technology like LinkedIn are just new ways of complementing (some would say avoiding) personal contact. Get out there and get your face known! Pick up the phone and call some potential clients. Speak at some networking events. Knock on some doors.”

As Mr. Lewis’ quote insinuates, there is a significant difference between merely communicating and actually connecting with customers and prospects. I can instantly communicate with thousands of people with the click of a few buttons. Yet even with the myriad of now common “high tech” options, the only better way of really connecting with someone other than the lowly telephone is in person. Unfortunately, that option is often unavailable.

My first suggestion is therefore quite simple. Include some “low-tech” tactics in your marketing plan. Pick up the phone and start dialing. Your next large client may be waiting at the other end! Mine was.

2. As of July 2011, 13.9 million Americans (9.1% of the civilian workforce) were unemployed. Over 6 million people are deemed long-term unemployed, Washington-speak for out of a job over six months and desperate. Motivated by a lack of alternative employment opportunities, large numbers eventually migrate into their own business or consulting, as I did. Unfortunately, many are fundamentally unprepared for the operational and emotional challenges that line the road to successful self-employed. Nevertheless, they are more in need of a simple word of encouragement than business advice.

I end with a quote by Thomas Edison. He said, “Many of life’s failures are people who did not realize how close they were to success when they gave up.” That is as true in today’s difficult economy as it was in 1879 when Edison perfected the light bulb after experimenting with over 10,000 different filaments.

That leads me to the shortest and most basic suggestion I have ever dared offer. Hang in there!

Until next time, I wish you good fortune in all your business endeavors. Let me know if I can be of assistance.

 

© 2011 by Dale R. Schmeltzle

You are Invited to my Party

Small business coach and author Robert Gerrish said, “For many, one of the greatest moments in business is the joy of attracting a new customer or client. In such circumstances, it is easy to get so caught up in the excitement that we forget to spend time on realizing the value of one of our business’s best assets, our existing client base.” For example, you may have heard banks criticized for offering free checking to new customers while charging existing customers for the same service.

As Mr. Gerrish suggests, all too often promotions only target new prospects. Show your appreciation of existing customers by holding promotions and events designed exclusively for them.

  • A special after-hours personal shopping event or trunk show, complete with entertainment, refreshments and “invitation only” discounts is an example. If your products typically require sizing or fitting (such as clothes), allowing a two day presale can create additional excitement. Customers select their purchases in advance, which you hold until the actual sale. This procedure also requires customers to visit your facility at least twice.
  • The luxury day spa I spoke of earlier invited my wife and I (did I mention she is one of their most loyal customers) to an art exhibit by a nationally recognized concert pianist. The event also included a wine tasting.

Another way to demonstrate your appreciation for existing customers, suppliers and employees is to hold an open house or reception. This is a great way to display your operations. It will also strengthen relationships between customers and staff that have not met. If your facilities do not include a suitable physical location, host it at your home, a nearby restaurant or under a tent on the front lawn. Moreover, while your open house or reception must be memorable, it does not have to be expensive. Class is not measured in dollars.

  • You may find network contacts are willing to help cater the event, print programs and menus, provide entertainment or other useful services at substantial discounts in order to promote their products and services to your customer base. Always take full advantage of your network and be ready to reciprocate by supporting and promoting their events.
  • Avoid scheduling functions on weekends or when likely to conflict with numerous holiday events. Use all of the communications tools and options previously discussed to ensure good attendance. There is nothing more discouraging than hosting a party when no one shows up.

A final caution about special event promotions is that in order to be truly special, you cannot hold them too often. Any promotional tool that is used too frequently runs the risk of creating customer expectations that will cause them to avoid full price purchases in anticipation of a sale or event that may never happen.

Next week, I will present an exciting 3-part series on my ongoing love affair with SlideShare.net. It picks up where a June series on this topic left off. I think you will enjoy it. Until then, stay safe and enjoy your weekend. You earned it!

 © 2011 by Dale R. Schmeltzle

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