PROJECT MANAGEMENT/ENGINEERING
SUBSYSTEM 5 MARKETING
Goldratt’s analogy for marketing and sales begins to identify the core prob- lem of many marketing efforts. He claims that “Marketing’s function is to bring the ducks to want to sit in your field, preferably with glue on their feet. The role of sales is to shoot the sitting ducks.”**
When we listen to many vice presidents of marketing describe their projects, we hear a great deal about data analysis and sales support. We find many people within marketing functions who rarely visit clients or pros- pects. Good marketing people ask their customers and prospects a com- pletely different set of questions than the salespeople would ask.
*For further information, see the Bibliography references to Theory of Constraints Self- Paced Learning Program on Distribution.
**For further information, see the Bibliography references to the Theory of Constraints Self-Paced Learning Program on Marketing.
In order for any organization to stay healthy, an organization must sat- isfy its markets better than the competition, at least in some aspects. The more important customer problems it can satisfy, the better the chances of retaining and expanding the customer base.
Therefore, there is a very important question that a marketing function must ask, analyze, and address. This question should become the meat of projects in marketing. The question for both customers and prospects is
“What problems do you have that no one in our industry is addressing?” In other words, marketing must discover what problems it can solve in the industry that no competitors have yet solved. Salespeople, on the other hand, ask, “Did you have any problem with our company in your last order”? This is an excellent question for a salesperson who wants to retain a customer’s business. It is not meaningful for a marketing person who wants to gain market share or own a given segment.
The problem with asking the marketing question as phrased above is that most customers are not intuitive enough to answer such a question di- rectly. To understand what the marketing opportunity is to gain a huge com- petitive advantage, a marketing person must be able to access senior cus- tomer management and ask them to tell him or her about their business.
For example, the president of a furniture manufacturing company called on prospects and asked them what made it so hard to run a furniture retail store. He heard comments such as, “You see this huge inventory in the store. Most of it has been sitting here for 6 months or more, and I’m paying the bank huge interest charges to finance all of this inventory. And at the same time, I have customers who walk into the store and can only find a partial living room or bedroom set, or the color that they want is not in stock.”
The president of the manufacturing company asked the owner of the retail store why he had so much inventory. The owner, looking at the presi- dent as if he were nuts, said, “Are you kidding? It’s you guys that force furniture dealers to take so much inventory!”
“How so?” asked the president.
“First, it takes you 8 to 12 weeks to fill an order. So we have to hold large quantities of inventory to last for at least several months. Second, if we don’t buy large quantities, we don’t get a decent discount and then we can’t compete with other furniture dealers down the street. And finally, if we don’t buy at least half a truckload of furniture, we get killed on freight charges.”
With this information, it became clear how the furniture manufacturer could create a compelling marketing offer and beat the competition. He
The Eight Major Subsystems 107 launched a marketing program with transportation logistics that offered new dealers three major advantages:*
■ No minimum order quantities — no penalties for freight.
■ Volume discounts would be based over time, not on a per order basis.
■ Guaranteed replenishment every two weeks.
With these promises, the dealer could satisfy more customers with less inventory, and substantially reduce carrying costs. With fewer stock-outs, their sales would increase. Also, they could respond more quickly to changes in consumer taste, by carrying a smaller inventory and turning it more of- ten. They could also carry a greater variety of products. A byproduct for the dealers was that their administrative time to configure an order was drasti- cally reduced. For the most part, they were on a replenishment system, just replacing what they sold in the previous two weeks.
Note that the implications for project management are significant. The furniture manufacturer did not need huge pots of data and custom, complex analysis and reporting. He did not need to implement complex co-op adver- tising programs to attract new dealers. He did not require complex sales analysis to track different discount structures for different dealers.
In most cases, the companies are not changing their products. Rather, they are changing their policies — policies that have become imbedded in their industry by all suppliers. These are policies that drive customers crazy.
We have seen policies like this in every industry in which we have worked.
For example, in the airline and car rental industries, there are frequent user programs that give awards. However, there are often restrictions (dates of use, the ability to upgrade, etc.) attached to the awards that prevent the customer from fully enjoying the award.
Hospital buying groups (called GPOs — General Purchasing Organiza- tions) drive hospitals crazy with policies restricting them from going out- side the agreed upon products.
Some restaurant fast-food chains drove customers to the competition by making it hard for them to order a customized product. These concepts even apply in smokestack industries (e.g., steel and aluminum) that are 100 years old.
To apply these concepts successfully, marketing must understand how to increase the customers’ perception of value for their products, working from an external view of the problems that the market has with most or all
*Gerald I. Kendall, Securing the Future, Strategies for Exponential Growth Using the Theory of Constraints, St. Lucie Press, Boca Raton, FL, 1997.
suppliers. You do not work from an internal view of the product itself and its features.
To accomplish a huge impact on a market, marketing must analyze the customers’ problems in more depth than has typically been done in the past.
This requires some skills that we often find lacking.
Another important aspect of marketing strategy is to segment markets, not resources. The idea is to operate in independent market segments such that, while some segments may be moving down, others are simultaneously moving up. This protects the organization’s revenues and stability, as well as insulating its employees from market turmoil. Segmentation is done in many different ways. You know that you have achieved good segmentation when the price and quantity of a product sold in one market is not impacted by the price and quantity sold in another market.
One example of segmentation is having different geographic markets that are isolated from each other. Another example is in the airline industry, where the same seat can attract different pricing, depending on how far in advance the seat is booked and what cancellation privileges are desired.
The companies who apply the two methodologies (compelling market- ing offer and segmentation) achieve a competitive advantage typically last- ing 2 to 5 years without a roller coaster ride in revenues and profits. It puts the company in a position of being able to create more demand than it has capacity to fulfill, letting it pick and choose its customers. This gives the company enough predictability to ensure employee security and satisfac- tion and avoid the deadly spiral of ongoing downsizing.