12 }SCIENTIFIC
ADVICE
WHEN YOU PURSUE INNOVATIONS THAT CREATE NEW MARKETS YOU REALIZE 9.6 TIMES MORE PROFITS THAN WHEN YOU TRY TO “PLAY IT SAFE” WITH INCRMENTAL INNOVATIONS
Success in sales and marketing is a relative concept. It’s relative to how much you’ve sold versus a predetermined objective. Most managers have an intense personal interest in results relative to the objective because that’s usually the basis for personal commissions and bonuses.
Sadly, sales usually fall short of forecasts. A study of fifty-three new products found that the average sales forecasting error was 65 percent and that the median error (middle value) of sales forecasts was a 26 percent shortfall. In effect, if you miss your objective by less than 26 percent, you’re doing better than half of the researched companies.
A study involving 103 computer software firms was conducted to determine what traits influenced companies’ sales forecasting accuracy. The companies with more reliable forecasts conducted more customer interviews before creating their forecasts. The data clearly showed that conducting interviews with a few potential buyers produced better forecasts (a 91 percent confidence level), and interviews with fifty or more potential buyers produced even greater improvement (97 percent confidence level).
Many factors classically assumed to impact forecast accuracy showed no significant impact, including judgment of founder, judgment of industry experts, competitive analysis, and market research concept tests.
Net: To increase forecast accuracy, talk to more customers to gauge their reaction to your new idea.
PRACTICAL IDEAS
Get Out and Talk to Fifty or More Potential Buyers: When it comes to forecasting customer interest, nothing beats the value of face-to-face conversation; the more the better. Instead of debating the merits of your offering in internal conference rooms, go out and talk with real customers face-to-face. As you talk, listen and learn earnestly. Don’t try to persuade; rather, listen and understand what customers perceive. Remember, customers are far more likely to act on their perceptions than on your view of truth.
Talk to Customers in Different Ways: You can maximize the reliability of your customer feedback by providing them with multiple perspectives of your offering. Provide customers with the facts and the feelings of your new offering. The more they can honestly analyze, feel, and experience what you have to offer, the greater the accuracy of their feedback. Provide customers with a real demonstration. If that’s not possible, provide them with a clear, honestly written description of how your offering will affect their lives or businesses.
Don’t Hide Your Negatives: Detail the strengths and weaknesses of your offering. Be honest with your customers. In a straightforward manner, detail every trade-off you’ve made in your product or service design and why you feel those were the correct decisions. Customers understand that 200 percent greater performance at 20 percent of the cost is rarely reality. Explaining trade-offs in a calm and confident manner removes the chances of emotional overreaction.
Document Your Past to Prevent Repetition: Review what you did to generate your past sales forecasts. Document the methods used and the accuracy of the results. Then estimate the real cost of forecasting errors. This figure provides the necessary data to support additional forecasting research before the next new product or service is shipped.
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SCIENTIFIC
ADVICE
TO INCREASE YOUR LONG-TERM ODDS OF SUCCESS, DON’T CUT YOUR PRICE IN THE SHORT TERM
Customer expectations of value received and cost paid are set when they make a purchase. When customers make initial purchases at a discounted price, they develop a lower value perception than if they purchase at the regular price.
A study was conducted of matched sets of stores for five new products. In one set of stores, during the first few weeks of availability, the initial price was set about 20 to 30 percent below the regular price. In these stores, the price was increased to the regular list price after the trial period. In the other stores, the products were introduced at regular list price.
Across all five of the new products, long-term volume was higher when the brand was not sold at artificially cheap prices upon introduction.
I don’t have the data available, but if we were able to calculate cumulative profit, it’s likely we would find an even more dramatic negative impact on bottom-line profits.
Artificially low prices “rent” customers, and rentals must eventually be returned. When you sell on price, you mindlessly train customers to perceive low price as the primary benefit of your offering.
Meaningful Marketing means customers make a conscious choice for good reasons. It means that they perceive real value. The net result is a deeper, more Meaningful connection with customers and longer-term sales and profits.
PRACTICAL IDEAS
Provide Proportional Trial-Size Offerings: Lower price reduces customer risk, but it also creates an artificially low price/value relationship. To prevent this, offer miniature sizes of your product or service. A trial size, a single use or limited supply that is proportionally priced reduces the absolute price while still maintaining the appropriate price/value relationship.
Pursue Exclusive Distribution Arrangements: When your offering has a Meaningful difference, it can become a tool to help retailers build customer traffic by using it as a loss leader. And when one retailer discounts your price, soon all do, resulting in an artificially low price perception by customers. By building exclusive distribution agreements in specific areas, you reduce the chances that competitive forces will unnecessarily depress your pricing.
Market Free Samples or Bonus Discounts with a Partner: Generate sampling yet maintain pricing integrity by jointly promoting your new product or service with another brand. The combination of your product with another will enhance the special one-time-only aspect of the promotion and not allow customers to tie the deal they got on your product to your brand’s price. For example, when a customer receives a free one-year subscription to a cooking magazine when they purchase a gourmet cook stove, they don’t expect the magazine to be free forever.
Encourage Customers to Use Competitive Discounts: If you’re feeling really bold, tell your customers when your competition is offering special discounts. Especially in business-to-business situations, this demonstrates your confidence in your product’s Meaningful difference.
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SCIENTIFIC
ADVICE
TO SPEED SUCCESS, TARGET YOUR INITIAL SALES AND MARKETING RESOURCES ON THOSE CUSTOMERS WHO ARE MOST OPEN TO TRYING NEW THINGS
Customers have varying levels of acceptance and interest in Meaningful Marketing messages.
On the cover of their book, The Influentials, Ed Keller and Jon Berry wrote, “One American in ten tells the other nine how to vote, where to
