Posts Tagged ‘ Market Analysis ’

Sales vs. Marketshare – Are you evaluating market potential correctly?

The Evolution of a Field Sales Force

Before we get into some real nuts and bolts issues, let’s think about how business starts. It starts with a product or idea, someone goes out and sells something to someone near them. More customers are found and more is sold, typically, from the manufacturer directly to the end-user.

At some point the manufacturer of the product comes to their first crux point: One of two courses must be chosen:
1. Direct Sales Force
2. A Channels Strategy

Within these choices there can be any number of hybrid strategies:

  • A direct sales force that calls directly on end-users
  • A direct sales force that calls on industrial distributors and sells through them
  • A direct sales force that calls on “bigger” end-users directly and sells through a distribution channel
  • An independent manufacturer’s agent network that does any of the above already listed
  • Direct sales to industrial distributors
  • The list can go on based upon individual companies and territories.

Generally, there are exceptions to every rule or SOP and, when pressed, all manufacturers will admit to “grandfathered” exceptions.

The real key to this is that in most cases the management of the sales channel “evolves” along the path of least resistance. There is, at most, a basic understanding of the market areas rather than a plan or “map” of success. Sales Managers evolve over time as well.

Think of a new sales manager like a fur trapper from the last century. He arrives as a tenderfoot and, over time, learns the lay of the land. He protects what he has learned and will only share what she knows with others whom she trusts.

Ok, so where does forecasting come into play? Typically sales forecasts also evolve based upon “What did we do last year and what do you expect we will do this year?”

There’s nothing wrong with that as long as you just want to do better than the previous year. Too many managers get caught in this closed loop system and fail to look deeper into the the business. As an example, let’s look at that fur trader again. She’s hired a bunch of trappers and has a successful business. He’s impressed because over time, what used to be a terrible area for trapping has got a really hard working trapper and it’s delivering more business each and every year. But in the “great territory” he suspects that the trapper is not working. Times changed. The trapper in the formorly “bad” territory is sandbagging and only working a few days a week because the Beavers repopulated while in the former “great” territory it’s all “fished out”

But is that really what’s happening?

Sales vs. Marketshare
RULE #1: EVERYTHING in your forecasting should be about developing MARKETSHARE.

Let’s jump back into some big picture stuff.

The reason for this is so that you can adequately gage performance in key market areas. If you gage how your territories are performing based only upon sales volume you will not know who is performing up to par and who is not performing. If one market has a total market potential of $100M and another has only $4M and both territories are generating the exact same sales volume the territories are not equal. But how do you determine where the markets area? How big are they? How should you separate your territories?

I’m sure you’ve heard about not trying to eat the whole elephant but taking it one bite at a time. But where to start? Where is the target market for your products?

Marketing Campaigns & Military Campaigns
Let’s take a bit of a sidebar. If you understand that most management theory is based upon Military theory then perhaps the best thing to do is take a look at how the Military plans for success.

Operations Planning Model

Think about it: If someone is planning something where lives are at stake they are probably going a lot deeper than any marketing campaign you can envision. If you want a ready-made template for planning your marketing Campaign then take a look at The Campaign Planning Handbook from the US Army War College

One of the first things at the tactical level that the military asks is “What is the terrain?” They pull out a map.

Some More History
Maps are a great visual aid to sales planning and forecasting. So, to start, let’s think about how North America was settled. As the westward expansion took place the United States originally set State boundary lines along easily definable geographic lines such as rivers or mountain chains. Although many boundaries are along rivers, cities developed on both sides of the river as a result of easy transportation along waterways. The boundaries of States are not always the best way to define market territories since the market areas traverse the original State Line boundaries. County boudaries where essentially set up the same way. Population centers, and therefore business, developed along these same transport routes. That is why the concept of a Metropolitain Statistical Area, or MSA, is so important.

If you are measuring sales success by County it’s almost impossible to see any trends

County Map of Sales

County Map of Sales

MSA’s
The United States Office of Management and Budget (OMB) defines Metropolitan Statistical Areas according to published standards that are applied to Census Bureau data. The general concept of a Metropolitan Statistical Area, an MSA, is that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core.

According to the 2000 standards provide that each CBSA must contain at least one urban area of 10,000 or more population. Each metropolitan statistical area must have at least one urbanized area of 50,000 or more inhabitants. Each micropolitan statistical area must have at least one urban cluster of at least 10,000 but less than 50,000 population.

Metropolitan Statistical Area Map

Metropolitan Statistical Area Map

Under the standards, the county (or counties) in which at least 50 percent of the population resides within urban areas of 10,000 or more population, or that contain at least 5,000 people residing within a single urban area of 10,000 or more population, is identified as a “central county” (counties). Additional “outlying counties” are included in the CBSA if they meet specified requirements of commuting to or from the central counties. Counties or equivalent entities form the geographic “building blocks” for metropolitan and micropolitan statistical areas throughout the United States and Puerto Rico.

If specified criteria are met, a metropolitan statistical area containing a single core with a population of 2.5 million or more may be subdivided to form smaller groupings of counties referred to as “metropolitan divisions.”

As of 2000, there are 362 metropolitan statistical areas and 560 micropolitan statistical areas in the United States. In addition, there are 8 metropolitan statistical areas and 5 micropolitan statistical areas. You can find a much more detailed map from this US Census Bureau link that you can print out

So why is this important?

National Highway System

If you undersantd that cities originally developed along transportaion systems you can understand how markets have developed. As the ‘west’ was settled cities tended to develop along river tranport systems. By the late 19th century streetcars led to the development of ‘suburbia’ and made room for the immigrant melting pot. Rail systems began to connect major metropolitain areas and by the mid 1960’s the interstate higway system started to connect the major MSA’s.

NOTE: Terrain has a direct impact on travel time.

To truly understand marketing areas you must have a good understanding of the topographical terrain and transport routes that support them. Today, markets develop along interstates. If  markets are disconnected there will be more “windshield time” between accounts.  When reviewing territories it’s always a good idea to understand the limitations imposed by terrain or traffic patterns.

NOTE: The US Census Bureau created the foundation of the ZIP Code system based upon population centers. MSA’s are a further refinement of that.

Performance Evalutation
MSA maps are certainly better for taking a look at overall territory structures. Population centers are a good indicator of where business markets are located. But to really drill down into where YOUR industrial business is located, manufacturing, then you need to overlay a more detailed business map.

These kind of maps can be very very large and space does not permit here on the blog to depict one. So instead let’s look at some micro markets:

SIC 33-39 Map Of Business NE-OH/W-PA

SIC 33-39 Map Of Business NE-OH/W-PA


Understanding the market areas:
Now we’ll dig into the actual data a bit more. Let’s evaluate two sales territories: Northeast OH and Western PA for SIC codes 33-39.

Land Mass

  1. Territory 1: WV panhandle and Western PA = 39,205 square miles (Based upon 3 digit ZIP codes: 150-169; 249, 254, 260-268)
  2. Territory 2: in Eastern OH = 10,487 square miles (Based upon ZIP codes: 440-449)

Territory 1: Western PA

  • Total Companies = 7,306
  • Total Employees = 260,068

Territory 2: Eastern OH

  • Total Companies = 11,208
  • Total Employees = 435,368

USMTC market growth data:
According to the June 2008 USMTC reports we know the following:

  • Northeast – PA north through New England – 08 sales versus 07 sales up 4.3%
  • Midwest – OH around through WI – 08 sales versus 07 sales up 81.5%

The Territory 2 market had grown substantially more than the Territory 1 market.:82.5% vs. 4.3%.

Territory Sales Comparison

Territory Sales Comparison

So what to do we know?
At first glance Territory 2 had higher sales dollars. But when we dig into the numbers we can see that:

  • Territory 2 has only 60% of the land mass of Territory 1
  • Companies: Territory 1 has only 5/8 the number of companies in Territory 2
  • Employees: Territory 1 has only 5/8 the number of companies in Territory 2
  • Sales per Employees in territory 1 exceeded territory 2
  • Territory 1 experienced minor market growth compared to Territory 2

What can we learn from this?
The key to this whole discussion is understanding your markets. As opposed to basing your forecasting on past experience or “gut knowledge” of a market area take some time and dig into the data.

Marketshare Potential is probably the best way to gage your success.

Take Aways:

  • Do I have a good understanding of where all of my markets are?
  • Do I have a good understanding or market potential in each territory?
  • Do I need to look at travel time between accounts?
  • Has business developed right around the corner from me that none of my salespeople are calling on?
  • Should split at territory?
  • Should I enlarge a territory?
  • Are my territory boundaries set up correctly?

Why Brand introductions FAIL in Channels Marketing

It took a long time for me to understand that there are some common denominators in why some fantastic brands fail while other, inferior products, are successful in channels marketing programs. Below you will find six key points to think about. Think of these six as cylinders in a car. If five of them are working but not six you’ve lost all forward momentum.

“Faulty execution of a winning combination has lost many a game on the very brink of victory. In such cases a player sees the winning idea, plays the winning sacrifice and then inverts the order of his fellow-up moves or misses the really clinching point of his combination.” – Fred Reinfeld , The Complete Chess Course

So, in my view, there are six core elements to any brand introduction in the eyes of distributors:

1. Marketing Materials – Are catalogs, price lists, flyers, trade show schedules, advertising schedules, lead processing all provided in a timely fashion? Does the vendor send in 25 catalogs for a sales meeting with a salesforce of 5 people and a customer base of 250? What is the package quantity of literature? Does the literature have a part number? Is there a literature request form? Who is that sent to? Are the marketing materials “intuitive”? (are all of the components needed to complete and order listed in the catalog? Is the catalog easy to use and find all related products? What about videos? Social media sites? Brand exposure?

2. Quality of Product – Does the product have “walk away reliability” or does it suffer from a myriad of quality issues. This goes beyond the product working as it was marketed to work and includes horseshoe nail problems (no torx screws in the box, partial shipment of all components. Is the distributor going to spend all the money that would have been made on the margin servicing the customer and trying NOT to get “egg on their face” in the process which will affect other product lines and the relationship with the customer?

3. Competitive Pricing – Does the product provide a good ratio of price to performance? Is the vendor adaptable and responsive to price corrections in a short time frame? Has the vendor provided all of the necessary sales information to “sell” the value added?

4. Availability – Is there stock? If so on what products? Many times distributors have heard on new product introductions that “there is plenty of inventory” only to find out that “Well, we have three pieces of everything”. If there is a stock out problem, is the vendor proactively responsive contacting the distributor on late deliveries before the distributor calls to expedite?

5. Customer Support – Is the field support and customer support team trained and up-to-speed on all of the products? Can they technically support the product line? Can they crossover competitive information? Do the support people say “I don’t know the answer to that” and end the conversation with “Are your happy with my your level of service today?” or do they say “I don’t know the answer let me find out and call you back in 10 minutes”. Are they responsive? Are they proactive? What is the SOP on quote turnaround ( 2 hours, 24 hours, 2 weeks)?
Customer service can take on many variations. I’ve listed a few for you to ponder.

The Customer Service Problem
I once spent 6 months trying to figure out why we weren’t getting more orders. The end-users loved it, the outside sales people loved it, the owners of the distributors loved it… then I found out that the inside sales person at the distributor HATED dealing with the manufacturer’s inside sales person who had a really poor attitude.

The Gun Shy Problem
Then there is the “gun shy” problem. The regional sales manager or agent has some “other” issue, typically some internal political issue with a POLICY of the manufacturer that is so out of the norm that the distributor can’t even grasp it. Want an example? At the end of a quarter every call made for an trial application is responded with “I’m not sure if that’s a good test” Even in cases where the promo video has almost the exact application featured! Finally, after much prompting you find out why:
“The accountants are really tightening up on trial applications/test tools”
“My boss is really riding me on any testing right now”
“I’ve gone over my trunk stock budget”

The New COST CENTER Problem
Sometimes, as companies grow they hire very well versed accounting and legal people. This can wreak havoc at the sales generation end of the business. In most cases, it’s good business, stuff the company should have been doing all along, but in others, it’s policies and procedures that, in my very humble opinion, (in deference to my need to keep accountants, lawyers and op’s people happy 😉 just create roadblocks to doing business. That being said, I was sent this video a couple years back by a very astute owner of a manufacturer.

The Young Gun Problem
I recently had a conversation with a “young gun” He called me after a week of us talking about a competitive opportunity and explained that he had not been in contact with me on my question because he was too busy handling all of the business at his BIGGEST distributor in another market. He had lost all of the notes from our conversation which I had not written down myself. He further explained that he had some health issues with his father with some medical testing. I explained that I fully understood, but I did not have time to talk about it at the moment as I was just walking into my Grandmother’s hospital room

6. Trust – Is there trust in the relationship? This is the “gut feeling” stuff. It comes out in the one-on-one conversations. Is something being held back? Are direct answers given? Is the manufacturer asking lots of questions as if he where going to handle the business directly or take it through a competing distributor? Is the manufacturer “throwing his weight around” and not really acknowledging that the distributor runs their own business? Does the agent or manufacturer call the end-user directly….and not tell the distributor or independent rep? Do they visit the end-user on their own?

The most successful brands are built on a foundation of trust and loyalty. Each party knows where the other stands. You can actually watch the relationships grow. In the early phases it may be that the distributor or the agent calls up the manufacturer and asks for something… The reprimanding parent response is “You know we can’t do that! We can do xxxx.” To which the smiling reply is “I know, but I had to ask.” Later, as the relationship evolves, when the distributor or agent calls up they say “Hey, we just promised this program and that promo with this product, I know I need you to approve it but I already quoted it while you where on vacation” and the response “Great Job, what else ya need?”

Perhaps, more than any other item on the list, this last one IS THE MOST IMPORTANT.

The “Agent” or “Regional Manager”
An agent or territory salesperson has a relationship with his customer: The distributor channel. It’s where they live, It’s where they put food on their table. Most of the smart independent agent, and even the factory guys, realize that the relationship is the most important aspect of their livelihood. Management comes and goes, manufacturers change gears, different managers come on-board with their own ideas and their own relationships, but the one consistent thing is the customers and that trust.

The Distributor
Distributors are even more protective of their turf. They have their territory marked and that is how they perceive it. When a distributor brings someone into their customer it is akin to bringing your first date to meet your parents. You are coming into their home, you are being extended the relationship that they enjoy. When anyone tells them “That’s MY customer” they are pretty offended and, like a dog, they’ll probably come back and bite you.

Brands are sold ONE person, ONE customer at a time until they tell two friends and so on, and so on, and so on, until it’s viral.

As a final thought, I’m reminded of a picture from the 1970’s that hung in the VP of Student Life’s office back when I was Student Senate President. It showed a picture of a HUGE Sit-In protest over some student issues. The caption read:

“Communication is the beginning of Understanding”

Good words to live by in your channels branding efforts