Archives for posts with tag: Marketing

 

by Merlin Hernandez

 

If only I had a dollar for every time I’ve heard someone sing the praises of some great widget and how much money there is to be made if the creator should go into business. Without trying to diminish the value of innovation, by itself it may not provide the most solid foundation required to make a success of a business venture. There is an old adage that a superior product has a good chance of doing well in the marketplace but a mediocre product with a well-defined strategy will perform far better. Many brilliant and talented innovators never make it in business because they do not have a full appreciation of the business dimension to their work. This is to emphasize that regardless of how good the product is, it is the application of sound business strategies that will bring success.

In developing the business idea, it is necessary to first determine the core benefit to be provided to the consumer. This would come from market research that identifies a basic need. Too often in the small business sector, product development is a feature of the notion that a good product will create its own market – the idea of selling what is made rather that making what the market needs. But businesses need to be market-driven with customer satisfaction as the primary focus. A viable product is a result of information on marketplace trends, customer needs, wants and preferences, customer consumption patterns, and the activities of competitors so that the right marketing mix can be developed. The product idea will therefore be defined by the targeted market segment and the client profile.

To screen and select the idea that has the greatest potential for market success, the idea is also measured against resource capabilities to be applied to production and marketing. The ability to successfully develop, produce, and market a product depends on having the right mix of available resources. The business must be sufficiently capitalized to support key research, the right personnel, the most suitable raw materials, manufacturing equipment, processes, and marketing strategies that would bring desired returns. These elements need to operate in a delicate balance – I have seen a great marketing strategy realize sales volumes that could not be fulfilled on time because of inadequate production capacity leading to cancelled orders and low profitability. The other side of the coin is strong manufacturing capabilities and a weak marketing budget which can result in poor sales, high inventory, lower prices, and financial loss.

The process of developing the full product concept will be more meaningful through consultations with potential customers to better understand the benefits they value and the necessary product attributes for market viability. This kind of partnership culture opens up a first level commitment to the idea from the customer. It is also useful at this stage to engage professional advisors, potential partners, suppliers and other stakeholders in the process for feasibility and logistic input. The concept development phase is probably the most important exercise as it introduces the product idea to the potential market as well as explores the company’s ability to make the product available. Any negatives emerging from this phase would be a clear indication that the product does not have the potential for success.

Before any commitment to the idea, an analysis of the costs of bringing the product to market should be measured against the potential contribution to sales and profits. Furthermore, an in-depth market analysis should explore the competitive environment and other environmental factors – like the climate of innovation which might put an investment into the new product at risk. For existing businesses, possible new marketing strategies should be integrated into existing marketing objectives using channels and tactics that have demonstrated success. The rationale is to diffuse the cost and structure of marketing the new product throughout the marketing system in order to achieve cost efficiencies. R&D can now be charged with developing a prototype based on product attributes identified in the market intelligence and resource capabilities, with special attention to consumer contributions obtained at the concept development phase.

The market testing phase is aimed at collating customer responses to prototypes. It provides information for product modification and refinement, as well as full development of the marketing plan. Market testing could also determine whether the product should be abandoned due to poor consumer interest. Once results of testing are favorable, the business idea has been effectively developed and the product may now be ready for commercialization and the introduction to the market. Commercialization is the action plan for introducing the product to the market. It includes timing, pricing, distribution, budget, advertising and promotion, launch impact, and adoption by the target market, along with strategies to incrementally increase sales volumes and build the brand. The process is meant to leverage the effects of marketing strategies on ROI and optimize market spend in relation to competition.

Market success does not begin with a product but with the way it delivers value and benefit to the end user. Many businesses are incorporating the customer as a partner to their product development initiatives as a way of building strong external partnerships, demonstrating the value of the customer to the organization, ensuring delivery efficiencies based on articulated customer need, while availing themselves of a ready market down the line. In developing the product idea it is also important to differentiate the product by finding new ways to extend product value beyond expectations through the addition of new layers of customer satisfaction to the development matrix.

Related articles on this blog
Marketing Service

The Budget

 Resource Planning and Costing Systems

Strategic Capacity Planning

Focusing the Business

 

 

Advertisements

by Merlin Hernandez

Shipping is a vital component to logistics and supply chain management. With the rising strategic importance of global sourcing and international marketing, logistics planning has become a strategic priority. Shipping has thus assumed greater importance in the external environment with the globalization of commerce. The Internet has sped up communication and supported ease of information transmission for documentation and confirmations. Huge challenges remain, however, in delivery times, language and cultural differences, infrastructural capability (bureaucracies, roads), costs, payment methods, and currency exchange rates. Differences in legal systems and international laws can also influence import-export restrictions, duties, and tariffs that exist between and among countries.

Shipping and other logistics costs now account for more than 10% of sales revenues and are beginning to erode the economic advantage of operating internationally. This is fueled by the complexity of this aspect of business operations for which many companies do not have the expertise. Additionally, prior to going global, many large companies have had fragmented internal logistics that are siloed by brand or department. An overall enterprise-wide strategic approach to logistics management and greater attention to logistics planning may be indicated. The advantages are better management of economies of scale through improved consolidation and broader-based decision-making. This will be more readily achieved in a flatter organization with enhanced functional integration for more efficient procurement and order delivery. But even without any organizational re-structuring, a single shipping department can go a long way to leverage cost savings across the range of shipping needs.

Businesses seeking the advantages of global sourcing or to tap into lucrative international markets would find it especially useful to establish a long term relationship with a professional shipping firm like an international shipping broker or freight forwarder to help navigate the complex channels and legal requirements. This is especially beneficial to small businesses.

by Merlin Hernandez

See article on Internet transactions published on October 8, 2012

After reading my article on Internet Transactions, one of my friends expressed surprise that there was no real comprehensive legal framework for internet transactions. Some transactions are subject to existing contract laws but interstate and international commerce where laws may be different present problems – which state/country’s laws apply. Hence the CISG umbrella for international arbitration. The area of privacy, however, is particularly volatile. I think the issue of the differences in laws relating to both domestic and international internet transactions is also one of the main reasons why there seems to be an overall reluctance by the US judicial system to wade in an enact legislation to govern privacy considerations in internet usage.

But perhaps a more salient issue is the rate of new technological inventions and applications. The changing landscape might essentially make draft legislation outdated before it even becomes law. The current legal framework for online privacy rests mainly on two federal laws, the Electronic Communication Privacy Act of 1968, and the Children’s Online Privacy Protection Act. Since then, new and emerging internet technologies and usage have created a minefield of inquiry that has essentially stumped the judicial system and the FTC itself.

Part of the problem appears to be that legal architects are of necessity seeking to legislate behaviors within a fragmented approach. There is really no overall statutory structure for internet privacy, sites are not required to have privacy policies, and there is no generalized “right of privacy” unless there are violations that are paralleled in an offline setting. Perhaps in order to give some form to the inquiry, the first order of business might be to create some kind of charter of internet privacy rights and develop a body of law that would safeguard them.

The fluidity of internet usage which influences the structure of internet marketing will continue to have lawmakers struggling to catch up. In such an open-ended environment, arbitration is probably the most viable form of dispute resolution.

by Merlin Hernandez

As a response to the demise of Scandinavian automaker Saab, in conjunction with loss of US market share, Volvo moved to fill the gap in Europe and re-direct its market focus as a viable alternative to arch rival BMW. In the face of large contraction in its US luxury fleet rentals, the company is using the opportunity to carve a place for itself in the re-alignment of the global auto industry and the increasing economic importance of emerging Asian markets. In a subtle shift in brand positioning as mid-range luxury, the primary focus of a revamped grand strategy is on customer satisfaction with the luxury image as secondary. The company continues to capitalize on its reputation for safety with a new emphasis on advanced telematics and better human-machine interaction. This is designed for wider consumer appeal and increased global sales at the retail end.

The re-branding of Volvo is facilitated by a new design culture that places less emphasis on luxury and more on competitiveness through value creation. Performance, comfort, and enhanced features comprise a design aesthetic aimed at increasing customer satisfaction. New market positioning, expanded production, and moves to widen global penetration are expected to set the stage for sustained revenue growth through retail sales with much less of a dependence on luxury fleet rentals in a climate where corporate belt tightening is still necessary. Steadily improving revenues will see a rise in investor confidence to accelerate the stock’s growth and boost Volvo’s ABB classification. In 2011, Volvo recorded a 20% increase in global car sales over 2010.

Volvo advanced its global interests by acquiring Ford’s former plant in China to effectively increase its production volume in anticipation of satisfying the needs of emerging markets outside of the US. The modulating of the classic V40 to become a cross-country wagon is a major strategy in the Volvo thrust to create global buzz and drive the numbers by shifting its sights down market with a high quality product that has caught the eye of the auto world. The V40 Cross Country targets the Chinese market which is wide open with currently only 83 cars to every 1000 people [compared to the US figure of 812/1000], and fast growing disposable incomes. The launch of the Cross Country at the Paris Motor Show last month has stimulated new interest in Volvo in the US market even though the model is not available in the US.

Also in September, Volvo rolled out its FH big rig on e-Bay no less, effectively positioning this new product offering within reach of the average truck driver. This is the client base expected to troll the home of after-market bargains for used parts. Volvo is using Twitter and Facebook to channel traffic to the eBay platform. It is a waking to the Volvo brand as appealing to a wide cross-section of buyers to replace the company’s primary branding in mid-range luxury where a firm like Audi still remains. This is expected to impact sales of the Volvo S80 compact sedan in the US trade. The S80 is a flagship product sold at close to a compact price ($38,000-$46,000) comparing well with the BMW 3 Series ($33,000-$60,000) and the Cadillac CTS Sedan ($39,000-$50,000). The Audi A8 is priced at $72,000.

Meanwhile the European crisis has influenced poor European sales in 2012. Combined with a recent stroke suffered by CEO, Stefan Jacoby, there was the risk of the company’s main goals being derailed by a nervous market that could see the stock price falling. There had also been speculation that Jacoby was reluctant to pursue an opportunity for very high end luxury cars in China, the home market of the company’s owners. In a bid to allay market fears and to spur faster growth in China, Jacoby, under whose stewardship the new direction emerged, was replaced last week. We might expect the company to continue its lower-priced retail thrust to drive sales volume but the luxury tag will be back to satisfy the demand for uber luxury among a new Asian monied class who are not about to be deprived of the full trappings of their recent wealth.

by Merlin Hernandez

I think one of the things we have always to be mindful of in running our own business is to resist the temptation to shift too far away from our core business or core competencies. In the euphoria of finding a new opportunity to increase revenues, it is common for small businesses to confuse the incorporation of a complementary product for compatible usage which would fall under product enhancement, and diversification which will take the business into new activities. Finding ways to expand the basic product platform by enhancing the product mix through low cost improvements for competitive advantage would pose less risk than moving too early to diversify.

Product enhancement maintains the product and target market but seeks to add value in order to increase customer satisfaction. Costs should be minimal and the move is intended to improve sales. Enhancement aligns with core competencies and resources as they exist i.e. it utilizes current resources to create a more inimitable product offering in order to sharpen the competitive position and increase margins. For example a wine bar can start a wine club which will increase the customer base for wine sales. Serving cheeses, fruit or nut complements to the wines can also effectively enhance the product depth but maintain its consistency for greater value delivery and client satisfaction. It is basically selling the same product through new strategies and channels which would require minimum capital outlay rather than incorporating the cost of marketing a new product. This type of resource-based growth is more concerned with margin growth and the accumulation of assets/surplus revenues.

Diversification has to do with broadening the product platform outside of the core business with products which might appeal to the current customer base. To extend the wine bar example, the inclusion of a complementary product line, in this case perhaps crystal stemware, would be a related product but will target a new market e.g. the gift trade. This would alter the business model as well as place different demands on the business in terms of cost and other resource capabilities. Diversification should only emanate from excess capacity that would support the introduction of greater product variety. Critical to diversification is that assets have been accumulated to the point where the excess is being underused and can possibly support multiple usage. There should also be definitive evidence of a demand opportunity in the new product being offered since introductory/competitive strategies like advertising can erode margins gained through diversifying. Small businesses are therefore better poised for incremental product enhancements or gradual expansion of their market reach to increase profitability to the point where a diversification strategy might be indicated by the availability of surplus assets.

by Merlin Hernandez

The US Appeals Court yesterday overturned the injunction granted to Apple that prevented the sale of Samsung’s Galaxy SIII in the US amidst charges of IP infringement. This comes as no surprise since similar lawsuits by Apple in the UK and Germany were struck down in the lower courts. While I would not go so far as to say that the case was frivolous, any astute observer might surmise that all the brouhaha was more about keeping the Galaxy SIII out of the market until the launch of the iPhone 5. The entry of the Galaxy SIII in the international market was met with record-breaking sales. Apple would be well aware that US consumers can access the Samsung product through any number of websites based outside of the US. There is really no way to keep the competing product out of the market in the long term. The injunction did not bar Samsung from advertising the Galaxy SIII in the US and ads for the phone stimulated intense interest among US consumers. There is also a lucrative, long-standing relationship between the two phone giants where Samsung manufactures many of the components for Apple products. The relationship may not be cast in bronze but any fracturing could seriously derail strategic goals and timelines for both companies. Neither company would want that.

In the contemporary technosphere, OEMs like Apple, for whom innovation has been the primary differentiation strategy, have only a small window of market opportunity to recoup their R&D investment before the competition catches up. Tactics, legal and otherwise, to forestall market entry by a competitor have become par for the course – part of the corporate obligation. Apple, however, is aware that the time window is becoming narrower and they cannot rely purely on innovation to drive growth. This is already the mature phase of the smart phone life cycle where declining revenues and decreasing customer loyalty are to be expected along with sharpened competitive tactics. The issue is no longer about increasing market share – there are now too many players in the field and supply is outstripping demand driving prices down while the cost of getting the message across amidst the noise is eroding the gains from market expansion. Apple is actually opting out of the intense competitive landscape with its increased marketing and branding spend, drastic cost cuts to increase margins, and price wars.

But value creation and customer loyalty will drive market retention and repeat buying of product and upgrades. In other words, the strategy is go deep, not wide. Apple’s new emphasis on value creation through a hyper-responsive customer service culture intensifies the customer relationship in a different kind of demand orientation that is less concerned with market forces and more reliant on customer intimacy. Apple has re-defined its value map to offer a superior service product in conjunction with cutting edge technology. This will provide the traction to extend the market lead for Apple’s new product beyond the competitive entry of the Galaxy SIII which is positioned right up there next to the iPhone 5.

With Samsung’s earlier launch in the international trade, the lawsuit gave Apple a head-start in the domestic market as retailers, even in e-commerce, adopted a wait-and-see posture. The Appeals Court decision saw a slump in Apple stock, closing at $630 down from $646 yesterday but it was an overall roller coaster day with the Dow closing down 19 points. Apple stock did get a major boost after the lower court victory against Samsung last August so this dip might just be a leveling off of the stock.

by Merlin Hernandez

One of the issues that I find fascinating is the curious dance between brand name drug manufacturers and generics. The Hatch-Waxman Act under the Food, Drug and Cosmetic Act (FFDCA) has created a climate where brand name drug producers can make “reverse payments” to generic manufacturers to delay market entry for two and a half years in a nice little arrangement where everyone but the consumer seems to get their little piece of the pie. This could be seen as a way for brand name producers to fully recover their R&D costs, and achieve reasonable gains on their investments before generic brands, which have piggy-backed on new product innovations through reverse engineering, are allowed to cut into profit margins. It may be a primary corporate obligation for brand name manufacturers to circumvent generic market entry in any legal way they can.

On the other hand, the Sherman Antitrust Act outlaws the joining of commercial interests to form monopolies that can undermine competition and free market forces – the law is meant to prevent contrived monopolies and forestall restrictions to trade and supply, and protect the public from unfair practices like price-fixing. The Federal Trade Commission (FTC) has been waging an on-going battle to challenge Hatch-Waxman patent litigation settlements as a per se antitrust violation and has not yet been able to prevail in its quest to eliminate reverse payments in ANDA litigation. Caught in the middle of this legal soup is the consumer who must pay exorbitant prices for vital medicines. Thank you, Canada!

The Courts have ruled that “any anti-competitive effects fall within the ambit of the patent exclusionary right” Ethical questions arise when we examine who the beneficiaries are to the cozy “sweetheart deals” between brand name and generic companies – the former protect their profits, and the latter gets their cut. The real question may be which estate has been given the mandate to protect the public interest? Is it business or government?