Part 2 of this marketing training material builds on the material covered in part 1
Sales promotion – “made-to-measure” sales campaigns to increase turnover
This material is copy right of Spearhead Training Group
In contrast to advertising, sales promotion largely has a direct influence on the realisation of short-term turnover or cover charge goals. Sales promotion includes every measure, which stimulates turnover. You can (and should) formulate sales promotion on three levels (according to availability) with reference to:
a) your own field sales staff
b) the market
c) the end buyer/consumer
A company should not, however, achieve its turnover exclusively through sales promotion campaigns. Basic turnover, which should be approximately 80% of overall turnover, must be based on excellent marketing. Maximum exploitation of existing turnover potential will only be achieved through additional measures.
No long term sales campaigns
Long-term sales campaigns are normally too great a strain on your budget as they usually involve price reductions and this lowers your profits. Sales campaign prices, when specifically set, are permissible as long as they can achieve additional turnover. The frequency of the sales campaigns makes it increasingly difficult, however, to carry out sales under normal conditions.
The most important goals, which can be achieved through sales promotion include:
· general increase in turnover and cover charge.
· gaining new clients.
· increasing the turnover of existing clients, introducing new products onto the market, eliminating supply gaps in the market, commercial distribution goals, changing or stabilising consumer purchasing patterns.
· Enhancing your company name on the market.
Sales promotion as an incentive to buy
Gaining new clients
Why should a potential client, who has been a loyal client of one of your competitors for years, suddenly decide to change companies? In order to initially invite new clients to buy your products, there must be specific reasons for them to do so: a new level of quality, new location (which is closer to the client), new production technique or new range product.
A first order discount is also a sensible additional incentive to buy. If the new level of quality or the new product is convincing to the client, they may become a long-term client. If it is only the price which serves as an incentive to buy, the client will very probably return to their original supplier once the special price is no longer on offer.
Sales promotion should, therefore, only be used in support of your other sales activities, never on its own. Sales promotion alone is seldom even enough to attain a long-term increase in existing client turnover.
Sales campaigns on the market
It is possible to increase the turnover on the market by increasing your sales. There is a whole range of buying incentives you can use to do this, including shop announcements, posters, special packaging and, of course, price. Unfortunately there are often no possibilities on the market to maximise turnover than carrying out further sales campaigns.
Extending your range
Companies seeking to extend their ranges often learn that there are capacity and place limitations, since shelf space cannot be extended ad infinitum. A manufacturer will therefore only be able to extend the range if this also coincides with the long-term interests on the market.
The goals of sales promotion
a) Using sales promotion to introduce new products onto the market
The introduction of new products onto the market almost always needs
to be supported by sales promotion activities. The field sales staff must, therefore, be informed and convinced of this, so that the salespeople present the product with the requisite commitment. You can encourage salespeople’s motivation by introducing schemes where there are bonuses for gaining new clients and attaining a desired level of turnover. To emphasise the importance of new products, their presentation by the field sales staff should ideally take place within the framework of sales conferences. If you are introducing new products onto the market, you must inform the market in plenty of time. Even while you are still developing the product, you should keep an eye out as to what criteria the market employs to select products.
b) Using sales promotion to eliminate supply gaps in the market
By using the new scanner cash desks in conjunction with the new bar
code system, the market is now better informed of how much stock is needed to avoid turnover losses as a result of insufficient supply.
Manufacturers’ optimum level of order and stock volumes will increasingly become a problem in the future, which the field sales staff will only be able to solve by employing factually-based arguments. Salespeople should, therefore, be trained in how to conduct rational, well argued sales negotiations.
c) Using sales promotion to achieve distribution goals
As a result of increasing concentration in the market, distribution goals,
such as gaining new traders, are increasingly less the result of short-term sales promotion activities and far more the result of long-term, solid co-operation with the market. This is especially true of the foodstuffs market and increasingly true of a number of other markets, such as drugs, toys and books in the stationary market. Only in those markets in which suppliers are faced with completely unorganised retail traders (e.g. the pharmaceutical market) is it possible in the short-term to gain new clients by persuasion during a sales negotiation and by using “incentives”, such as sales campaigns and special offers.
d) Using sales promotions to influence consumer purchasing patterns
Sales promotion activities, which are directed towards consumer purchasing patterns, aim to intensify purchasing frequency, increase the volume purchased, strengthen loyalty to the market, underwrite the acceptance of new prices or packaging, gain new clients or increase the number of clients who regularly purchase from the company. You should not, however, overestimate the possibilities of your own marketing and sales promotion activities. A well known example of failure to successfully implement new packaging sizes was the attempt a few years ago by coffee suppliers to eliminate the 500g packaging. This failed as a result of consumer protests.
e) Using sales promotion to enhance the company’s name on the market.
This goal cannot be achieved through sales promotion activities alone.
Sales promotion is not a “cheap” substitute for advertising in the mass media. Consumers are confronted with a whole range of sales campaigns and products on the market. They initially plump for what they know. Advertising must, therefore, prepare the perception and effect of sales promotion in consumer markets, in drugs markets and even in specialised commercial markets. Sales promotion activities cannot compensate for weaknesses in advertising or other marketing measures. Therefore, they do not create brand loyalty but can only support, or maybe intensify loyalty to brand names.
The importance rules of sales promotion
Sales promotion is not a panacea for turnover weakness. It must be employed in a particular way to be able to achieve certain goals.
- Long-term campaigns have an ever-decreasing effect and require a constant increase of campaign intensity. Sales promotion therefore becomes increasingly expensive and loses efficiency.
- Sales promotion should only be used for products which are really worthy of being promoted. It should not be used to promote weak products. Lack of success in sales promotion becomes a burden on the whole of your marketing and leads to loss of image.
- Sales promotion activities must be in tune with the market.
- Sales promotion must not be a permanent fixture, but should only be used in exceptional cases as a reaction to your competition.
THE AIMS OF SALES PROMOTION
1. Introducing a new product
2. Introducing a new product line item, new packaging, etc…
3. Increasing distribution (numerically and evaluated)
4. Intensifying brand popularity at the Point of Purchase
5. Intensifying purchasing frequency by consumers
6. Establishing brand loyalty
7. Compensating for the price pressure of the competition
8. Bridging the gap between seasonal “lulls” (increasing turnover in this period)
9. Reducing or increasing stock levels on the market
10. Pushing up the speed of turnover
11. Covering shelf space (against competitors’ products)
12. Keeping products up-to-date at the point of purchase
13. Publicising new user possibilities of a product
14. Gaining new target groups (extending target groups)
15. Re-educating consumers to a new price level for a product (acceptance of higher prices)
16. Re-educating consumers to new packaging of an existing product
17. Establishing/increasing brand loyalty
18. Creating new purchasing patterns
19. Eliminating supply gaps
20. Creating goodwill in your own field sales staff, in the market and on the part of consumers
21. Gaining new clients
22. Intensifying the rate of return purchasing
23. Increasing the possibility of double positioning in the market
24. Increasing the number of sales visits
25. Increasing the number of orders placed
26. Motivating (training) salespeople
It is not sales promotion, but a company’s long-term marketing measures which determine its competitive position. Sales promotion only serves to increase the effect of a company’s marketing strategy. Sales promotion should not be used to offset weaknesses but to build on strengths.
The instruments of sales promotion
a) Posters in the point of purchase
Posters in the point of purchase should be a reference to your company’s overall communications strategy. Originality and constancy are important criteria. The aim is to stand out from the competition and facilitate consumer recognition of your products. The price should not be the main argument of your poster.
b) Prospectuses, counter signs, shelf stoppers
With display materials and presentation devices, you should pay particular attention to the dictates of the market, since these influence your displays.
c) Shop floor announcements
These can be loudspeaker announcements containing slogans from radio advertising or elements of printed advertising. Ideally, they are part of your own advertising. When considering advertising in conjunction with the market, the costs of which are in principle covered by one’s own company, a company should take care that it is not helping to finance the market’s own advertising, but is investing in its own brand products.
d) Price campaigns
Price reductions should never be carried out in isolation. They should always form part of a wider campaign, involving other measures.
e) Double positioning and special positioning
Market research has shown that sales increase if a product is positioned in two places (even at the same shelf price). Companies should therefore try and negotiate as many double positionings in the market as possible. You must make sure, however, that each double positioning meets the expectations placed on it. With the help of bar code-supported market research, the market can monitor such activities. Failure has a detrimental effect in the long-term on a company’s image and hinders the achievement of further similar measures.
If double positioning is employed in conjunction with price reductions, the manufacturer must check that the additional sales at a reduced price cover costs. Double positioning should not, however, be viewed solely from a financial point of view. The additional sales incurred means that your company is taking away part of the market from your competitors, you are exhausting your own capacity and you are improving your own position in the market by increasing profits and turnover.
f) Product changes
The product is the core of your own marketing mix. When carrying out sales campaigns, you should therefore only modify your product if it is absolutely necessary. The introduction of a better quality level can, however, be the driving force behind a larger sales campaign, in which, for example, you introduce variations in the size of packaging or create special packaging. Cardboard packaging can, for example, be used by children if it contains pictures to collect. Tinplate packaging can be printed with different kinds of motifs and can thereby become collectors’ items.
Focus on product advantages
However, when introducing new products which have distinct product advantages, you should make sure that you focus on these product advantages. Make sure they are not obscured amidst fancy accessories. This makes it easier to update older, well known products at a later date.
Public relations – speaking with the general public
Every individual is constantly communicating with their environment. We say what we want, find out what others desire and communicate with others. This is how we achieve our goals.
Communication and trust
Behavioural norms have developed for communication – i.e. we have learnt certain rules. The more familiar we are with others, the better we know the rules and the easier it is for us to communicate. A lack of communication creates insecurity. A lack of clarity leads to mistrust. The decisive factor is how others perceive our communication skills.
Communication in organisations
The same goes for organisations, which find themselves in complex exchange systems, however, the situation is far more complicated.
a) Organisations are more complex constructions. They are composed of and are represented by many people.
b) The rules are different from those governing personal communication.
c) There is a lack of personal communication in many areas. In place of personal communication, there is mass communication and two-tier communication processes.
These characteristics are also true of non-recruiting organisations, profit and non-profit organisations. All of these systems are in the public eye.
Communication partners in organisations
It is not only the organisation but its communication partners which are extremely complex and more contradictory than those within the framework of personal communication. The effect of a message may be positive for one part of the general public, but it may be perceived in a negative sense by others.
Do not leave your company’s communication to chance or to the mercy of short-term events. Plan for the long-term and make sure that all your communication measures are in harmony with each other. “The power of the word” can be supported by many different measures.
Instead of giving a final definition of the concept of public relations (PR) or work with the general public (both terms are used synonymously), it is better to focus on a description of the tasks and activities of public relations work.
The role of public relations
- Recognising and forming social communication situations for the use of systematic planned communication.
- Analysing the social scientific problems associated with internal and external communication systems, against the backdrop of social and communication-specific situations.
- Advising company management in a communication-specific and social respect.
- Planning and developing long and short-term concepts for PR strategies.
- Drawing up measures catalogues.
- Providing guidance on the implementation, control and assessment of the effects of communication measures.
- Maintaining good business relationships in more than just extreme cases.
For many companies, maintaining good relationships with the general public unfortunately depends on the economic climate of the day. If business is going well, companies have no time to bother with such “trivialities”. It is different, if particular efforts are to be emphasised to the general public. There is usually a great deal of attendant disappointment if the echo which reverberates from this idea appears restrained and tortured. Public relations work only seems to gain significance if the company is experiencing difficulties which are threatening its relationship with the general public. The company then realises that there is nothing much that can be done in the short-term.
Active public relations work should be carried out when there is no acute need for it. If problems do then arise, you can benefit from the successes of the good PR work you have done in the past.
Your own interests and those of others
PR work is, first and foremost, communication for the whole company. Good public relations work is also the exchange of interests, the aim of which is to assert your own interests, without at the same time neglecting those of others. It is far easier to assert your own interests if they simultaneously serve those of others.
What constitutes your own interests and those of others? Your own interests are the commercial and personal goals of an organisation and its members. The interests of others are the receipt and construction of workplaces and training places, as well as other interests within the social environment, which are not directly connected to economic goals: protection of monuments, school interests, etc…..
Companies, which represent the interests of others, also gain support for their own goals.
A public relations concept contains ten stages
1. Organisation of public relations work as a central department with its own autonomy, or as a decentralised department (consultants, agencies).
2. Incorporation into the companies hierarchy. The PR department should be under the control of the company’s top organisation authority.
3. Establishing the budget.
4. The strategic communications goals, which it is best to lay down in binding form for all company authorities.
5. Gathering information. Public relations work is based on existing ideas and the wishes of others.
6. Operative planning of measures, which in turn depend on the hierarchy of goals adopted.
7. The determining of target groups.
8. Specific individual goals must be formulated for these target groups, which again must be in harmony with the rest.
9. Planning and carrying out concrete projects and monitoring their implementation.
10. Monitoring all measures.
Formulating target groups is particularly complex in public relations work. The reason for this is that all areas of the general public, with which companies have direct or indirect contact, are relevant for PR work.
The fundamental rules of public relations work
The following rules can be derived from the goals and description of PR work:
Executive duty
¨ Public relations work is an executive duty. This means that even if individual tasks are delegated, the top executive authority must identify with the measures.
¨ Public relations work also requires the trust of the members of the organisation. It is the job of “internal” public relations to create this trust.
¨ Communications strategy. Effective public relations work presupposes the co-ordination of all measures.
Unity of word and deed
- Public relations work is based on facts. The image of the organisation should be moulded through its communication, but the organisation’s actions also influence its image and must, therefore, be in harmony with communications. It is extremely dangerous to have discrepancies between communications and actions.
- Transparency. It is a public relations job to make the activities of the organisation understandable to the general public. Public relations means “opening up to the outside”.
- Continuity. Communications research has shown that long-term communication strategies with recurring themes are more effective than ones which are constantly changing.
- Systematology and strategy. Long-term goals, based on social scientific problem analysis, are the features of successful communication.
- Public opinion is the starting point of all public relations work. It is your negotiating partner’s perceptive, rather than your own, which is important.
- Creativity. The presentation of your company to the outside world must be both serious and original.
- “Social skill”, i.e. the ability to communicate with others and react appropriately to them.
- Public relations work entails dialogue. The organisation must pay attention to the reaction of the general public.
- Acting rather than reacting. Public relations work is calculated on the basis of considerable long-term future. It is, therefore, often too late to react to concrete “accidents” with PR work, if this has not been used in this area in the past. It is the job of the public relations department to create a social climate which permits the company to react to problem situations in an appropriate and commensurate manner.
Public relations work requires a “democratic communicating style”
Open communication
The exchange of interests requires open communication. There are two prevalent trends: companies are extremely willing to provide information (openness, continuity and objectivity are the creative powers in this) and at the same time willing to “listen” – i. e. to inform themselves under the same conditions. This willingness to communicate is limited, however, by the fact that neither side can demand total openness. This is accepted in a fair partnership.
Conflict settlement
The clash of conflicting interests is one of the characteristics of a democratic and pluralistic society. Communication and information are the democratic possibilities of settling conflicts of this type. The same is true in the world of finance.
A democratic style of communicating presupposes the existence of competing interests and the acceptance of this by all those concerned. Part of the democratic style of communicating is the fact that, as far as possible, the interests of others are included in the considerations of your own interests.
A willingness to criticise
What can we learn from this which can be applied in practice? Public relations work is considerably more than merely presenting a positive image of your own company.
PR work requires the acceptance of conflicting interests and their consideration, as far as possible, in company policy. It requires a considerable willingness to criticise and can only operate to its full potential if this conduct is practised within the company. People who close themselves off to criticism are only hiding from reality.
Even bad incidents are newsworthy
Press work is never exhausted in the annual report. A company should always be able to offer the local press interesting reports.
A complete willingness to supply information
Part of public relations work is also to make sure that the press is informed of negative incidents, whether this is an accident on the production line, necessary redundancies or poor profit margins.
Inform the press fairly and completely, and above all make sure that you provide the information on time. If in doubt, try and clarify the matter with one of the journalists who is responsible for covering your company. Base your relationship with the press on the premise that journalists are professionals: they live on information – both good and bad – and they have no interest in harming your company. On no account try and influence the reporting by talking to the chief editor or by using any contacts you may have. Any success you may have doing this will at best be a one-off and short-lived and in the long-term, could damage your whole relationship with the press.
The sooner you inform the press fairly of any problems your company may be experiencing, the greater your chance of minimising the damage in the eyes of the general public.
Which groups the public relations work is directed
Public relations work not only concerns financially relevant target groups, but the whole of the general public. The latter is divided into the following component parts:
· Local general public: this comprises both the whole population of a company’s sales area, as well as social institutions, schools, churches, police, emergency services, relief organisations etc… The local general public can be reached via media such as the press and local radio and perhaps even by local television channels.
· Political general public: district or city council, mayor, constituency MPs, parties (including youth organisations), associations, trade union representatives.
· The general public within one’s own organisation: all company employees and their dependants.
· The general public working for the media: people working for the press, journalists, local radio workers, magazine employees and employees of local television.
· Financially relevant target groups: all the companies in the local area, including potential competitors, as well as banks and all (potential) clients, irrespective of their location.
It is best to draw up a list of all your company’s target groups with the help of the groups listed above. This list should include larger groups (all area households), smaller groups (all regional political representatives), individual organisations (city fire department) or people. If possible, you should make sure that your list includes the name of your negotiating partners.
Product publicity – between public relations work and advertising
In many companies, public relations work is exhausted in the area of product publicity – stimulating the media into reporting (usually new) products. Product publicity does not do justice to the possibilities (and needs) of public relations work, but it is nevertheless an important marketing instrument, which compliments advertising.
In consumer goods marketing, product publicity entails publications in magazines or product presentations on television and radio. In the editorial pages of a magazine, there are sections such as “Cosmetic News”, “Household Tips”, “Car News” or “Gardening News”, etc. The effect of these publications should not be underestimated. They appear as objective reports or recommendations and are not identified as advertisements. The precondition for their appearance as objective reports is that they are unpaid publications.
Attention and credibility
Readers normally pay more attention to texts of this kind and believe them more than they do advertisements. If a company is trying to introduce new products, it should try and place these kind of product presentations in the press which are read by their target group.
The relevant editorial offices receive prepared texts and editorial pictures (not advertising pictures). The text should be written by professionals in public relations agencies or advertising agencies. In order to be published, the phonotype of the product presentation must be neutral. The brand name should appear discreetly in the text as well as in the picture, but the main thing is that the product uses are included in the presentation. Maintaining good relations with publishers increases the possibility of publishing press texts.
Link-up business
Formerly frowned upon, but something which can hardly be avoided nowadays, link-up business means that publishers can specifically plan the publication of press texts in exchange for a company booking adverting space. First of all, the readers are, therefore, exposed to an objective report about a product. In a later edition (never in the same way), there is an advertisement, which in principle conveys the same message, but in a more condensed, advertising form. It is therefore important to use your own photos and texts when presenting your products. If these are identical with those used in the advertisement, you run the risk of the readers connecting the two. This would destroy the communicative effect.
Product publicity for productive goods
As a result of the possible technical innovation content and readers’ great interest, it is also possible to try and motivate magazine publishers to make such publications with productive goods. The techniques are similar to those used for consumer goods.
An overall concept for communications policy
A whole range of different communications instruments are employed in the area of consumer goods marketing, and also partly in the area of financial goods marketing. As well as the “classical” instruments of market communication, (advertising, sales promotion, public relations work) product policy (especially as far as packaging structure is concerned) and sales policy (primarily via the sales negotiation) are also closely involved in the communications mix.
This diversity of communication applies more or less to all companies, both large and small. It contains both opportunities and dangers.
Information overload
The high degree of over stimulation in western industrialised nations has led to a considerable information overload. The result is that not even 10% of the population can take in and process all the information they are receiving. Pleasant and familiar incentives therefore have the best chance of being taken on board.
If you structure every measure on its own, your company will have no chance of conveying its message. It is therefore important to harmonise all the communicative measures you use and structure these into one whole.
Synergy effect
Synergy effect through multi-channel communication: it has been proven that people learn the same message, statement or information better if they read it in different ways. During a sales negotiation, a salesperson may, for example, pick up on commercial advertising statements and give the buyer or owner some sales documents containing the same message; consumers recognise posters in shops that they have seen in advertising and find packaging relaying the same message. Multi-channel communication is also referred to if the same advertising message is distributed by several different media forms.
Communications lead strategy
A long-term communications lead strategy: The effect of multi-channel communication (both television and in magazines) only lasts for a relatively short period of time. A consumer sees a television commercial one day and three days later sees an advertisement with a similar message. They recognise the sign again a week later in the supermarket. They are actually seeing the sign for the first time, but the message it is conveying seems so familiar that it can be classed as recognition. Consumers like familiar things, which, in turn, increases the possibility that they will buy products they feel are familiar.
Sticking to a communication lead strategy over all communications channels and their successive variations over a period of time makes for long-term successful market communication. It is a question of not completely changing an ongoing sales campaign, but modifying it gradually to improve it. Every complete change is tantamount to a new beginning and is correspondingly expensive. Every large brand name was built up over the long-term. Smaller firms in particular cannot afford to constantly start from scratch with their communications policy.
“Copy strategy”
A communications lead strategy is valid for all the communication measures a company carries out in the productive goods or consumer goods sector. Such a long-term strategy (which is also called “copy strategy”) is composed of four decision-making areas.
1. The long-term valid publicity goal
2. The long-term product promise
3. The justification for making this promise. This can be brand image,
product experience or simply trust in the consumers.
4. The long-term structural style of advertising.
Even if a company is not satisfied with a given communications strategy, before it makes any changes it should check the effect the strategy is having, in order to be able to build on this. The most expensive and least efficient market communication is that whose effect always goes back to zero.
Repetition has two effects: the effect is enhanced by the law of learning or the effect is negative as a result of redundancy. Make maximum use of the first effect by adhering to a long-term communications lead strategy – i.e. by repeating similar, but not always identical messages. Avoid the second effect by introducing variations, without, however, destroying consumer recognition of the product.
Co-operation with advertising agencies
Occasional or longer term co-operation
When dealing with questions or communication structure, you should allow yourself to be advised by experts. The experts are normally advertising agencies. The two distinguishable possibilities of co-operation are:
- If you are only occasionally dealing with structural questions, you will proceed according to each individual project and only commission an advertising agency from time to time.
- If you have more frequent dealings with structural questions – which are not necessarily within the field of advertising – it is better to have longer term, constantly regulated co-operation wit an advertising agency.
Selecting an appropriate advertising agency
When you have a larger budget to allocate, it is wise to have so-called competitive presentations, in which several agencies present their suggestions based on a fixed job description (briefing). If only three agencies are participating in a presentation, the costs the contractor has to cover are still quite high. It is not usual to pay those agencies giving the presentation, however, this is not thought to be a good idea. The result of an amazing presentation is rarely an indication of future quality.
Selection
It is only sensible to hold competitive presentations if you have a large advertising budget. Marketing management select from a list of well-known agencies which appear to be suited to the tasks that need doing. After extensive discussions with the agencies selected, a decision is made as to which will receive a written briefing (usually about three). There is then a further discussion after receipt of the briefing, which serves to confirm that the agencies have an understanding of the problems.
The agencies then present their suggestions following which a decision is made to which agency should receive the contract.
Another approach is to give six or seven agencies a written briefing and then allow all of them to present their initial suggestions. From these, two or three can be selected to give a final presentation. This costly selection procedure should prevent a company from randomly selecting the agency which has given the best presentation.
The expense invested in the selection process in comparison to the advertising budget, however, often seems too great. If this is the case, several references from the management’s list of well-known or recommended agencies can be taken up. The subsequent discussion should then be the decisive factor as to which agency will best solve your problems. Co-operation with the agency selected should initially be on a trial basis. You should not immediately conclude a longer-term contract.
An agency’s offer can include the following services:
¨ Advisory service in all questions of communication and possibly also of marketing. Their main tasks involve the conception, structuring and implementation of advertising, public relations, sales promotion and packaging.
¨ Another central theme of agency work is media work. Agencies suggest which media a company should choose (magazines, newspapers, radio or television), calculate the services each have to offer regarding range for determined target groups and compare booking and other costs.
Media agencies
There are also specialist agencies in the field of media planning, which should only be called on, however, if you have a larger budget. Additional tasks which are often carried out by specialist agencies include the organisation of trade fairs, exhibitions and direct marketing.
Several specialist agencies or one agency for everything?
If you work with a lot of advertising agencies, it is often difficult to reach agreement on individual measures. You should therefore limit the number of agencies with which you co-operate. If you have a small marketing budget you should only be working with one agency.
Consider the following criteria when selecting an advertising agency
1. Agency services and your advisory requirements should correspond. A
company must check beforehand that it knows what services it expects from an agency, such as advertising concepts, sales promotion or “only” help with trade fairs. The agency should have sufficient and possibly verifiable experience in the area of future co-operation. If needs be, you can call in references.
2. The size of the agency should also correspond to the volume of tasks it
has to perform. Large agencies are unsuited to smaller tasks and vice versa. Strong financial dependencies are problematic for both sides.
3. Geographical proximity is advantageous for advisory-intensive co-operation. New communications possibilities, however, are increasingly making this aspect relative.
4. If a company is very active in international markets, it may be necessary for the agency itself to have international contacts or be represented internationally by an agency network.
The agency contract
When entering into a long-term relationship with an agency, the contract you draw up should include as exactly as possible the description of task areas and the agreed fee.
Payment on a commission basis
Payment of advertising agencies is traditionally done on a commission basis. The media (press, radio), pay the agencies a commission of 15%, based on the volume booked for the client. In addition, it can also be agreed that the agency puts up a percentage (usually also 15%) of the costs it is supervising and/or any additional costs it incurs (such as printing costs).
Fixed fee
It is usual to pay agencies on the basis of a fixed fee. The mediatory commission of 15% mentioned above is then fully transmitted to the client. It is usually agreed, however, that the agency receives a share (about 5%) of the mediatory commission in order to do justice to work expenses, which depend on the size of the budget. A fixed fee is sensible as payment for a creative service, such as the structuring of an advertisement, does not then depend on how often this advertisement appears.
Cost estimate
When negotiating a fee the agency must produce a cost estimate. This calculation, which should be based on the usual hourly rates for the most important agency tasks, is a relatively reliable basis of assessment. There then remains to be considered the fact that creative services cannot be exactly calculated beforehand.
The agency briefing
At the end of the day, an agency’s performance can only be as good as the tasks it is set allow.
An accurate briefing should contain the following details:
Situation analysis
· Development of the overall market (quantity and value)
· Development of the market share in the past
· For the consumer goods market: development of distribution, sales development in several different areas of the market.
· Your own advertising expenditure and that of your competitors
· Qualitative assessment of the current competitive situation
Marketing goals
· Previous goals
· Future goals
- marketing goals (market share, distribution)
- communications goals
All goals should be described very exactly
· Desired product positioning in the competitive sphere – i.e. how should buyers view/assess your product? And how do buyers view/assess the products of your competitors?
Target group description
· Sociodemographic factors (age, income, family size, etc…)
· Psychographic factors (lifestyle, motivation, values, etc…)
· Observed purchasing behaviour (previous and current)
Budget
· Overall marketing budget (including details of the budget not administered by the agency)
· The division of the marketing budget into the different instruments of the communications mix: advertising, sales promotion, PR etc…
· “Temporal” division of the budget. (should advertising be carried out all year round or only at particular times?
Desired agency services
· Presenting the company’s communications strategy
· Requirements of media planning (desired range, advertising pressure, preferred media form)
· Exact description of the structural tasks in the fields of advertising, sales promotion, PR, etc….
· Examples of creative implementation (for example concepts which fulfil the desire for a “modern, fashionable product presentation”)
· The form of advertising which is rejected by the company
· Exact information concerning the product to be advertised (with product samples; with capital goods the agency must have the opportunity of seeing the original product and possibly discussing the matter with users)
Time plan
· Presentation dates (planning several appointments, since initial suggestions may need to be checked or revised)
· Dates for the production of print documents, photo appointments, radio and film appointments, media booking dates.
Decision-makers
· The decision-makers and co-ordinators involved
The continuity of co-operation
It is typical that the most successful brands in the consumer goods industry stand out as a result of long-term agency relationships. Communication has a long-term effect and requires long-term arrangements. Continuity in communication is a precondition for its success: if a change of management is accompanied by a change in communication style and agency, this can be alarming. Long-term communication goals, company, product and brand image all suffer as a result.
The importance attached to an agency (regular lists are published of agencies which have won and lost budgets) resembles a sports game more than professional communication work. The argument that agencies’ creativity can run dry, is highly questionable. Those who know the nature of agency work know that they employ both internal and freelance people to carry out the creative implementation of concepts.
Analysis of co-operation
It is sensible to regularly analyse existing co-operation and improve this in a jointly drawn-up programme. The more frequently you carry out such analysis, the more professionally and efficiently you will be able to find solutions to problems. You could discuss the following questions, for example:
- Is the agency properly managed and informed?
- Is the agency considering the information it is given sufficiently?
- Are the competent negotiating partners present at meetings?
- Are you using an agency’s particular strengths?
Selecting sales routes
Decisions concerning the selection of sales routes are, in principle, based on two criteria:
- Purchasing habits and the most economical solution
- The power of the market
On the one hand, you have to consider the purchasing habits of potential clients, which often determine the choice of sales routes. On the other hand, you also have to consider that there is a financial problem to be solved: which of the market partners – manufacturers or the market – can carry out the most cost-effective distribution? A manufacturer will make use of the different forms the market has to offer, if these can fulfil functions, such as transport, storage, punctual delivery, client contact or suitable packaging, better than they can.
Added to this is also the question of power. Some companies try to avoid sales routes via the market if the latter is particularly strong in a particular segment. For example, brand products in the foodstuffs market. In the area of frozen goods, about 30% of overall turnover currently goes directly from the manufacturer to the consumer, thus bypassing the market. As a result of existing purchasing habits, however, the manufacturer normally has no other choice but to choose a market sales route.
The choice of sales route is therefore based on the market situation leaving the manufacturer with very little scope for decision-making. However, it is extremely difficult to change consumer purchasing habits and is only possible if customers believe it advantageous for them.
Direct sales
This route allows for the largest form of client care – without consideration for the sales stages in-between. By improving this form of sales, a manufacturer can implement their marketing strategy more intensely than with others. For this reason, this sales form is usually the most expensive and is best suited to companies with a clear number of buyers. It is employed mainly in the capital goods industry and occasionally in the consumer goods industry.
Retail sales
If you have a large number of buyers, as in the case in the consumer goods industry, the retail trade slots in between manufactures and consumers. If there is a strongly concentrated and powerful retail trade, which can dictate the conditions of the market to the manufacturer, the direct sales alternative is unlikely to be used.
Wholesale trade
If a manufacturer not only has many anonymous consumers but also a lot of interdependent retail traders, it can be useful to call in the wholesale trade as a further sales stage. An example of this is the pharmaceutical wholesale trade. The manufactures of so-called over-the-counter goods (no prescription necessary, but pharmaceutical medication nonetheless) prefer to supply pharmacies directly.
If the retail trade is strongly concentrated or organised in the form of consumer co-operative societies, the wholesale trade does not stand a chance.
The old question: travelling salespeople or commercial representatives?
The question of whether companies should carry out their sales via their own sales organisation or via representation can only be answered from a purely cost point of view and according to qualitative criteria.
The cost point of view
Commercial representatives usually receive a commission based on turnover. A company travelling salesperson receives a fixed salary which is pegged to turnover. On top of this the company also incurs additional staff costs and other performance-related pay proportional to turnover and other sales costs.
It is extremely difficult to change from one to another
With a turnover level of x, the costs of both distribution systems are the same. With a turnover volume to the left of the x intersection, it would be preferable to co-operate with a commercial representative and if turnover volume is the right of the x intersection, it would be cheaper to use people from your own field sales staff. Since it is extremely difficult to change from one to other once you have reached the turnover level of x, you must estimate the turnover level you are able to achieve, so that you make the correct decision at the outset.
Qualitative decision-making criteria
A commercial representative is an independent trader, who can either represent the product of a single manufacturer or the products of several manufacturers in a precisely defined market. It is worthwhile carrying out sales via a commercial representative if the latter has useful contacts for your company, does not have to carry out intensive sales and if there is no specialist knowledge needed to sell the product. Since a commercial representative can work for several companies at any one time, there is a danger that they may neglect some companies if there are better turnover possibilities elsewhere.
A travelling salesperson, on the other hand, is subject to company directives and to the control of the company. It is especially useful to use a travelling salesperson if client care requires specialist knowledge, constant vocational training and if the company is intent on maintaining intensive contact with the client.
The decision between the two should never be made solely on the basis of cost considerations. You should also consider long-term developments, such as location and controllability, which do not find immediate expression in turnover.
Sales organisation
There are three “classical” organisation principles, which can be combined in practice.
1. If sales are based on sales areas, it is best to use regionally oriented
organisation.
2. If the products you are selling are very different and require specialist
knowledge, it is best to use product oriented organisation.
3. If the clients have specialist knowledge and solutions to problems, it is
best to use client oriented organisation.
Key Account Management
As a result of the increasing concentration of trade (foodstuffs have been a pioneer and other areas of trade will follow suit), the concept of Key Account Management is becoming increasingly important in the domestic market too. The “domestic” Key Account Managers are also directly responsible to sales management.
It is the job of the field sales staff to implement the turnover opportunities initiated by the Key Account Managers. The tight management of large trading organisations means that there is increasingly less scope for the field sales staff to carry out the sales themselves.
According to the intensity of the service functions which have to be fulfilled, some companies employ merchandise representatives to work alongside travelling salespeople.
Monetary control of the field sales staff
The choice of performance pay
There are basically two types of monetary incentives available to the field sales staff: commission and bonuses. The decision as to which you use depends, in the first instance on which sales performance criteria can influence salespeople and which performance areas company management wants to administer in order to pursue fixed goals.
Performance incentives must be judged according to their suitability to motivate employees and control performance.
Wage systems
Commission is usually the only pay a commercial representative receives. For travelling salespeople, commission is usually in addition to their fixed salary. The combination of money bonuses and commission is unusual. Additional recognition of performance usually comes in the form of specific material bonuses in addition to commission.
Three typical types of commission
Differentiated commission
Commission is performance-related pay, which is a percentage of turnover achieved. In a commission system the turnover and commission proportion (commission rate) directly determine the amount of commission an employee receives. It is possible to manage the field sales staff by having a differentiated commission rate, but the effect of this is uncertain. Possible differentiation could be a commission rate which is dependent on the level of turnover.
Linear commission means that every performance is remunerated in the same way, irrespective of performance level. Progressive commission rewards additional performances by an increasing amount. Degressive commission is the reverse – i. e. additional performance is remunerated less.
Constant rate of commission
With linear commission, the rate of commission is the same for all levels of performance. This type of commission is very easy to implement, but does not take into consideration the varying degrees of difficulty involved in achieving a certain level of turnover. The lowest level of performance, which partly includes “unavoidable” business, is rewarded in exactly the same way as the highest level of performance. It is assumed that salespeople have a strong influence on turnover which should certainly be the case in the insurance business. In practice, however, there are considerable differences in the volume of business concluded by individual salespeople, which are mainly a result of willingness and ability of the individual salespeople concerned.
The situation is quite different in the field of brand products and foodstuffs. As a result of the concentration of trade, turnover results are increasingly the results of listing agreements*, over which individual travelling salespeople have no say. In these cases, commission is an unsuitable management instrument.
*”Listing” is an agreement made between a trading centre and the supplier about which products to manage in company branches. This normally means that prices and product presentation are also centrally agreed. These listings are negotiated at managerial level. The travelling salesperson, who visits the company branches, executes the agreement which has already been reached and is therefore not responsible for turnover.
Since this type of commission is oriented exclusively towards turnover results, one of the essential prerequisites if its suitability is a strong personal influence on the part of the salespeople on turnover. If there are strong external influencing factors, we need alternative managerial methods for the field sales staff.
Competing incentives
Linear commission does not take into consideration the fact that, apart from financial incentives, there are other competing incentives for salespeople, which lie outside the professional field of application. The higher the level of performance and, consequently, the higher the income, the more important external incentives (holidays, family) become. You therefore need to continue to increase the financial incentive, in order to motivate employees to perform better.
Progressive commission
Over-proportional incentive
Progressive commission creates a particularly strong incentive to transact additional business. Increasingly high rates of commission are linked to increasing turnover. Additional performance results are remunerated in an over-proportional way. Irrespective of how this type of commission is linked to performance, it also raises considerable problems.
The first problem results from the increasing sales costs, which means that further increases in turnover beyond a specific level are unprofitable, even though an increase in the rate of commission can be partially balanced out by reduced manufacturing costs per item. This is particularly the case if high fixed costs are compared to the relatively low variable manufacturing costs in production.
Strong turnover pressure
The second problem results from the strong turnover pressure. If the field sales staff are motivated to increase additional performance through particularly strong incentives, the level of turnover achieved can often not be sustained in the long-term. A period of high performance is usually followed by a drop in turnover. A decisive factor in success, however, is the long-term fixed turnover goal. If the level of turnover is exceeded in the short-term as a result of particular motivation, followed by a drop in performance below this level, then the performance incentive has not had a positive long-term effect.
De-motivation of employees
The third problem associated with a system of progressive commission is that these turnover drops have a strong, negative effect on income, which has a direct influence on employee motivation. The result of this is a feeling of dissatisfaction and de-motivation. This is particularly serious if employees have got used to a certain level of income in the past and, through no individual fault of their own (e.g. economic climate), are suddenly confronted with a considerable drop in income. De-motivated field sales staff are particularly dangerous during a depressed economic climate.
Considerable differences in income
Finally, a system of progressive commission leads to considerable differences in income, which are often not actually justified through differences in performance and this can jeopardise inter-employees relations.
A system of progressive commission is probably only suitable if it is a question of strongly pushing up turnover in a particular area and the employees have nothing else to do but focus on this. This may be the case, if a company is launching a new product onto the market, when the product has to assert itself as quickly as possible. It may be useful to have a system of progressive commission when dealing with seasonal business, but only if excessive turnover does not then lead to a drop in demand or even returns.
A system of degressive commission has more advantages than at first sight
The disadvantage of a system of degressive commission
A system of degressive commission at first appears impractical. Additional turnover above a specific level is rewarded at a lower rate. At first sight, performance results and compensation do not seem to correlate. This problem becomes clearer if one realises that a travelling salesperson who achieves a high turnover already has a relatively high income as a result of high turnover achieved in the past. In order to motivate salespeople to achieve more, you must offer increasingly high incentives. This brings us back to a system of progressive commission.
The advantages of a system of degressive commission
On taking a second look at a system of degressive commission in comparison to other systems of commission, it does actually have several advantages. In the areas in which a system of degressive commission works, it is possible to achieve a long-term, relatively stable and plannable level of turnover.
Salespeople will endeavour to try and attain this “critical” level of turnover and at the same time they will harbour no ambitions of trying to exceed this level.
Levelling off of turnover
If they do exceed this level of turnover, they will find that in the first instance the rate of commission they receive will begin to level off and indeed drop. The next time, however, they will find that they are receiving a higher rate of commission, because the calculation will have been done from zero. This “transfer of additional performance” may lead to problems, but can also lead to a plannable and stable level of turnover with commensurate exploitation of production capacity.
Whenever you want to achieve constant, plannable business, you should consider introducing a system of degressive commission.
Top performers are often not exclusively attributable to the performance of your salespeople alone, but a system of progressive commission and even a system of linear commission, can lead to considerable differences in income between salespeople. A system of degressive commission moderates this discrepancy.
Should commission differentiate between performance areas?
As well as a differentiation according to level of turnover, it is also possible to differentiate commission according to sales area. It is possible to have different rates of provision for different purchasers, different products or different sales periods, which can manage performance. It is assumed that this system of commission takes account of particular sales difficulties or particular marketing goals.
The effect is unsure
The intended effect of this management mechanism is not guaranteed, however. This system of commission lacks the element of performance management. Nobody can say whether a higher rate of commission for a certain product actually induces salespeople to dedicate themselves 100% to selling that particular product, or whether they consciously accept that a lower rate of commission means that a product is easier to sell. It can also happen that (travelling) salespeople only amply themselves to the products of clients which yield a higher rate of commission and neglect others.
Assessing commission
Commission is a reward for performance, which only includes one dimension of sales performance – the attaining of turnover. In modern marketing, however, sales have additional functions beyond obtaining turnover.
Commission is not an appropriate instrument of management. It is extremely difficult to predict the effects of possible differences in rates of commission. The argument for commission is that it provides salespeople with a considerable incentive to improve their performance, which is practically “unlimited”. This assumption is false.
Commission lacks goal orientation
A system of pure commission does not contain any professed goals. The overall goal is “Do your best”. It has been proven that such ‘broad’ goals do not yield as good results as concrete goals. If salespeople can supposedly continue improving their performances since the sky is the limit, they will never be able to feel successful, because success focuses on a specific level of performance or the attainment of a certain goal. If there are no such performance levels, or specific goals, salespeople then set their own. They can set whatever levels they like, but they are usually based on individual potential and comparisons will colleagues. It seems highly unlikely, however, that these will be the same as marketing goals.
If, for whatever reasons (co-operation with commercial representatives), it is unavoidable to have a system of commission, you should make sure that it is combined with the concepts of goal-based company management (Management by Objectives).
Bonuses – the better alternative
Special bonuses and long-term bonuses
We can distinguish between two types of bonus: on the one hand, there is the usual type of bonus which is seen as a special reward for a particular achievement. This special bonus is also a way of including other aspects of sales performance (not covered by a system of commission). The second type is a long-term bonus, which is used as the main incentive for salespeople and replaces commission.
The advantage of rewarding a bonus is that it represents a fixed reward for a good performance, which is payable when certain goals have been reached. Bonuses are always linked to goals and are, therefore, the ideal combination of incentive and goal-oriented management.
For long-term bonuses, it is necessary to have turnover plans based on four to eight weeks (or even three months in the capital goods industry). Salespeople are given goals for every product area. Every goal has its own bonus attached to it. The amount of money salespeople can receive from bonuses is therefore composed of several individual bonuses and could range from 25% to a maximum of 50% of their overall income (including basic salary).
Missing goals
Salespeople should usually pursue no more than four to six bonus goals at a time, otherwise each individual goal will no longer be seen as a sufficient enough incentive in itself. If the salesperson attains the goal they have been set, they get the bonus. There is, however, a relatively high risk that the salesperson could miss out on the bonus if they miss their target even slightly. This is why many companies rule that if a sales-person misses their target goal by a justifiable margin, they will receive a reduced bonus – e.g. 75% of the bonus if at least 90% of the goal has been reached. Salespeople who exceed their targets should only be rewarded in a limited way and this extra remuneration should be linked to the condition that they have attained all their other objectives. Companies must prevent their travelling salespeople from underachieving in some areas and making up for this by overachieving in others.
Assessing bonuses
Goals and incentives are intertwined
When awarding bonuses, goals and incentives are intertwined as closely as possible. This means that the overall bonus remains relatively constant. The motivation to attain certain goals is greater and easier to manage than if your salespeople were working on a commission basis. An occasional counter argument is that the goals you set are seen as turnover limits, which in turn prevent your salesperson from achieving top turnover levels. This argument does not hold water if you think of the disadvantages of the alternative scheme i.e. a system of commission. With a system of commission, salespeople set their own goals, which could quite possibly be at variance with the interests of the company.
Realistic goals
It is only efficient to combine goals and rewards for performance if the goals you set are realistic and can be attained by your salespeople. If you set goals which are too high and cannot be attained, this only demotivates your salespeople. It is therefore best to include your salespeople in the goal setting process. Goals set jointly by management and employees are usually not as ambitious as goals imposed by management alone, but they motivate sales staff more and generally yield better results.
The goal system laid down for the payment of bonuses can mirror marketing goals. It is more reliable than a goal setting system which is agreed alongside a system of commission, since attaining or missing the target goals has a direct influence on the financial reward.
It is sensible to follow these additional rules for long-term bonuses:
· Over-achievements should not be transferred into the next sales period (cumulation) because this reduces the reliability of the goals set.
· Clear underachievement in one area should be punished by withdrawing a bonus from another area. This helps to eliminate the danger of salespeople concentrating all their efforts in one area and neglecting another.
· If it becomes apparent that one of the goals that has been set cannot realistically be achieved, as a result perhaps of unforeseen market changes, you should modify the goal accordingly. The success of the system depends on the fact that the goals you set are realistic.
Use additional bonuses
Campaign bonuses and special bonuses
Your system of incentives can be extended to incorporate campaign bonuses and special bonuses. You should not make too much use of these, however, otherwise the motivative effect of bonuses will drop.
The starting points of such additional bonuses could be:
· An increase in turnover compared with the previous year within a specific period of time.
· Make sure that you do not punish the salespeople who have already achieved a high turnover. You could, for example, make the bonus per salesperson dependent on existing levels of turnover. If you do this, however, you need to be able to justify the differences to your salespeople.
· An increase in order frequency per client visit, maybe according to client group.
· An increase in the number of products or product groups per order (range as a management goal).
· An increase in order volume per visit.
· Encouragement of special additional performances – e.g. the extension of product positioning.
· Canvassing new clients
Material bonuses and team bonuses
Special bonuses can be structured in several ways. They can be material bonuses, as well as money bonuses, individual or team bonuses. They are also appropriate for sales department competitions.
Bonuses are more appropriate for the field sales staff than systems of commission. They are multifaceted and more closely linked to goals. As far as the financial management of the sales department is concerned, it is more effective if financial remuneration is closely linked to goals and personal recognition.
Sales department competitions: do not just reward the “victors”
Competitions induce top performance
The whole incentive system can be relaxed by holding “sporting” competitions. Competitions bring out particularly good performances in salespeople. Note the following basic principles when arranging competitions.
Do not just reward the top performances
You should not foster too much competition between sales colleagues and above all, you should not just reward the top performers. A competition for “best salesperson of the year” only targets a very limited circle of salespeople. Good experience has been gained from team competitors, in which, at the end of the year, the best team gets the main prize and all the teams from second to last place receive smaller prizes.
· The competition should be based on understandable criteria and the goals should be easy to understand.
· The salespeople should be able to identify with the goals and realise the importance of them beyond the parameters of the competition.
· The goals must be attainable by every salesperson taking part in the competition.
· Every participant in the competition must be guaranteed equal opportunities from the beginning.
Co-operation between the manufacturer and the market
Concentration in the market
The foodstuffs market has the strongest concentration trends. The ten largest commercial enterprises monopolise almost 64% of overall turnover. At the point of purchase, this means that less than 5,000 consumer markets achieve almost 69% of all turnover.
Anonymous bodies
In large corporations, it is not the buyers who decide about listing and sales campaigns, but purchasing committees. “The power of anonymous bodies” has become a watchword.
This development in the foodstuff market is typical of the concentration processes which can be expected in the whole of the consumer goods market. Companies will also have a deal with European trading organisations, which will have an increasing amount of purchasing power in the future. There will also be an increasing number of interchangeable suppliers.
Market relations can also be described as power structures!
In principle, power in the market can be built up in two areas:
¨ Purchasing power or offer power
¨ The power of information
Power through information
Purchasing power is clearly the remit of the market. All the manufactures can do is build up their power of information. This is based on managerial qualities and first-class marketing know-how, which, in turn, must lead to success with clients. The power of information makes it easier for the manufacturer to carry out co-operative marketing with the market.
Reactions to a stronger-growing market
In what ways can a manufacturer react to the purchasing power of the market and their attendant dependency on the market? There are four conceivable basic strategies:
- By-passing strategy. The manufacturer tries to by-pass the power of the market by trying alternative sales routes. In the frozen food industry, direct sales make up 31% of the overall market (Irrgang, 1999). As a result of consumer habits, this strategy is not feesible for many manufacturers.
- Survival of the fittest strategy. Challenging the power of the market. Since the manufacturer is usually at a disadvantage vis-à-vis the market, this often eliminates the adoption of a survival of the fittest strategy.
- Adaptation strategy means accepting your dependency on the market. You give up claims to leadership. However, this strategy can be unsatisfactory for some manufacturers.
- Partnership strategy means trying to use active marketing in order to alleviate your market dependency. In practice, this strategy is often not pursued in a sufficiently business like manner. A precondition is that both sides are willing and able to co-operate. This co-operation, which is based on the free will of both sides and is usually contractual, is called “vertical co-operation.
A partnership strategy means that there is a division of labour in the following areas:
- Product policy
- Communication with consumers
- Consumer prices
- After-sales service (technical/commercial)
- Storage
- Logistics
- Shelf care
- Market research
The table following outlines the criteria, which form the basis of the market’s listing decisions.
Misjudgement
As covered in marketing training, how the market judges the importance of the individual decision-making criteria is partly the result of a lack of understanding of test market and product test results or of the data of advertising planning or television advertising, which the market incorrectly rates very highly. It is impossible to make any statements about the actual product success from this assessment.
From the above-mentioned criteria, you can deduce how to argue vis-à-vis the market and where to expect resistance. For example, if you advertise in magazines rather than on the television, because you have a small advertising budget, you know that this is the right choice. The market may criticise this decision. You will then have to convince the market that, for your specific product and target group, magazine advertising is much better than television advertising. You should not, of course, argue that magazine advertising is best on the basis of your small budget.
MARKET LISTING CRITERIA
IMPORTANT LESS IMPORTANT/NOT IMPORTANT
- Turnover frequency - Test market results
- Margin for the market - Product test results (mechanical,
chemical laboratory tests)
- Consumer advertising - The manufacturer’s previous
successes
- Market growth in the market
concerned
- Type of advertising (the - The manufacturer’s sales
market favours certain advertising
types of consumer goods
for the manufacturers to - Precise performance value from
advertise on television) media planning (advertising plan
for the product concerned)
- USP (Unique Selling Point/
particular advantages associated
with the purchase of appropriate
products)
- The market volume of the
market concerned
- Sales promotion – agreed with
the market
Areas of co-operation
A food magazine carried out a study of co-operation between trade and industry in which 73 decision-makers in trade and 100 decision-makers in industry were asked to participate. The study also separately assessed data from nine of the ten largest commercial enterprises in the foodstuffs industry and investigated 17 possible co-operative areas. The following table shows the results of the study in a sequence representing their importance for trade and industry.
AREAS OF CO-OPERATION
Areas of Co-operation Importance
1. Environment 100
2. Mixed groups of logistics experts 100
3. Sales promotion 92
4. Packaging/transport standardisation 88
5. Strategy exchange 88
6. Range building 84
7. Joint product development 81
8. Employee information 81
9. Mixed groups of sales experts 71
10. Product analysis 63
11. Automatic stock management 54
12. Shelf optimisation 53
13. Quality control 47
14. Joint events 44
15. Shop-specific client analyses 25
16. Purchasing 22
17. System of conditions 15
The study allows the following conclusions to be drawn for co-operation with the market:
Using conditions as a marketing instrument to build up lasting preferences is of dubious value, since the competition can quickly follow suit. Therefore, make sure that your products are environmentally friendly and that your packaging and sales promotion is in line with market requirements. Look for the optimum range and incorporate the market into product development in time. Pass on important information.
The interests of the market
The market has three fundamental interests, which you as a manufacturer should bear in mind:
1. Turnover maximisation with a given shelf space
The market expects that the manufacturer is pursuing a marketing strategy, which will ensure corresponding sales success.
2. Use maximisation with given shelf space per unit sold
In order to be able to meet the price demands of the market, the manufacturer must be able to exploit all cost degression potential. The manufacturer’s image and goodwill towards the brand product alone are not enough. These are only interesting for the market if a higher level of sales or profit potential results. The fact that conditions are not an area of co-operation should not hide the fact that price negotiations are important. Price implementation is also a question of power.
3. Show yourself off against your competitors through “experience”
This is where manufacturers have the opportunity of using their marketing know-how in co-operation and working out appropriate concepts.
Goals 1 and 2 can partly substitute each other – higher sales are needed if individual item profit is lower and lower sales can be justifiable if individual item profit is higher. Goal 3 allows the manufacturers to undertake additional marketing activities, but only on condition that Goals 1 and/or 2 can be sufficiently achieved.
Sales data in the market is becoming increasingly transparent.
Cheap sources of information
All points of purchase now have special bar-code cash desks. The market receives better information this way on profits and the sale of individual products and product ranges. Bar-code cash desks are very precise and cheap sources of information. They allow the market to optimise its management of storage and range. The result is stockpile reduction.
As a result, it is no longer sufficient for manufacturers to merely observe market information with the use of panel data as a source. Several different analyses are in demand. Examples of these are:
· Expected sales from the shelf per “facing” (product performance) in normal sales weeks.
· Expected sales from the shelf in comparison to expected sales from a second placement.
· The division of overall sales into shelf sales and additional turnover as a result of specific sales campaigns.
· An analysis of gross proceeds for the market.
· An analysis of sales components (i.e. the measures – second placement, shop-floor announcements, price reductions – to which sales figures can be attributed and to what extent).
Such analyses are carried out by market research institutes, such as Nielsen or GFK. Manufacturers of consumer goods increasingly need this data, since the market is demanding them in advance as criteria for co-operation.
“Hard” and verifiable data is increasingly becoming the decisive criteria in the market. It is the job of the manufacturer to guarantee later verifiable success through excellent marketing and process the data in such a way that it meets the information requirements of the market.
Prepare listing negotiations properly
Annual meetings, during which negotiations take place about the listing of products for the coming year, are decisive for a company’s overall success. The right preparation is therefore essential.
The following pointers show what type of information you should have at your disposal, in order to be able to negotiate successfully.
Your own marketing strategy
Present your own marketing strategy in a few words. The words you choose, however, should illustrate to the market the main advantages it will receive from your product.
Turnover development
Visualise the overall turnover of your products and turnover per client. If the turnover development with a specific client is positive, but less convincing in the overall market, you should concentrate your arguments exclusively on client-specific data. If the reverse is true, i.e. turnover development with a specific client is negative, but is positive in the overall market, you can use overall development as an opportunity to turn this client'’ turnover development positive.
Point out concrete measures with which you can turn round a falling level of turnover. You should especially try and do this if both the overall development and the client-specific development are negative.
Profit development
As well as checking the level of turnover for the market, you should also check the profit situation. Deteriorating turnover can be partly compensated for by an above average profit margin. A positive turnover development, on the other hand, can be qualified by a below-average profit development.
The areas of co-operation outlined show the types of areas in which you should seek to co-operate with the market (vertical marketing). Before entering listing negotiations, you should decide the concrete cases in which an offer of co-operation should be made and what form this co-operation should take.
Conditions
It goes without saying that, before entering any listing negotiations, you should have an exact idea of the conditions. You should also have a clear idea of how you are going to react to greater condition demands. You should never accept higher conditions unless you are going to receive something in return. Examples of this are: greater volume of turnover, stronger commitment to sales promotion, more shelf space and more advertising in the market. The principle to follow is that you should always receive something in return for higher conditions. Practice has unfortunately shown that higher demands by the market are met without anything in return.
Before entering listing negotiations you should have clear idea about developments in your competitors’ companies and information about any sales campaigns they have carried out.
Buying centre in the market
You should view the market as a buying centre, in which several people make decisions about listing and the implementation of sales promotion measures. You should consider here the information requirements of various different negotiating partners (and the same goes for the sale of capital goods).
In industry, it is easy to find out who the members of a buying centre are. In the market, on the other hand, they are usually anonymous. It is worthwhile (if possible) clarifying who the decision-makers are.
It is possible to distinguish the following groups in a buying centre:
- Management: management thinks in terms of cost-use relations for the company as a whole.
- Buyers: buyers are primarily preoccupied with conditions of payment and delivery.
- Experts: experts at managerial level want to be convinced as competent negotiating partners. This requires sound arguments as far as product performance is concerned.
- Users: users have to be convinced as pragmatists, who are accustomed to using the materials or machines on a daily basis.
You should supply your negotiating partner with meaningful documents, which provide a summary of the main points of your argument, because sales bodies are pressurised by a time factor. It is important that the sum total of your arguments are not contradictory, irrespective of different negotiating partners. They must be conclusive and understandable.
Selective sales policy
Profit optimisation through relinquishment of turnover
Strategic principles such as “partial withdrawal from the market”, “Extension of strengths/elimination of weaknesses”, or “weeding” are aimed at improving your profitability. One way of achieving this is by relinquishing unprofitable turnover.
The principle of selective market handling requires turnover to be subdivided into profitable and loss-making categories. We can select five categories, which are called sales segments.
· Order size
· Buyer category
· Sales area
· Product group
· Sales method
Of course, not every category will be of equal importance in every branch of industry. A company should select at least two categories and investigate these in the light of profitable and loss-making turnover.
Client analysis
Presumably, the categorisation of turnover according to particular client groups is particularly informative. Since companies usually realise that 10% of their clients represent 70% of their turnover, it is best to isolate this group and determine their share of overall turnover.
How is it possible to determine the contribution of individual groups to overall turnover?
A precondition for selective market handling aimed at optimising results is a meaningful cost calculation.
The demands made of cost calculations
A cost calculation which is to be used as the basis of selective market handling must fulfil the following criteria:
· The directly calculable manufacturing costs of each section must be ascertainable – as variable manufacturing costs.
· The directly calculable sales costs of each section must be ascertainable – as variable sales costs.
· The overheads must be ascertainable as a distinct entity.
Since at the end of the day, it is a question of selecting sections, which can possibly be given up at a later date, you must ascertain beforehand which parts of the fixed costs in production and sales will also have to be dropped. If you are no longer going to supply certain clients, you may be able to tighten sales or reduce some of your storage room. As a result, if a company pursues a policy of selective market handling, it not only determines which parts of its turnover it can relinquish – it also determines how the measures it is planning will affect cost structure.
The above-mentioned criteria are sufficient for a cover contribution calculation, the basic principle of which is as follows:
COVER CONTRIBUTION CRITERIA
A B C… …X
Overall turnover in % 100 100 100 100
./. Use of goods 60 70 65 50
= Cover contribution I 40 30 65 50
./. Directly calculable sales costs 30 20 15 25
= Cover contribution II 10 10 20 25
./. Converted overhead 10 15 10 10
= Result before tax 0 - 5 10 15
Annual figures
The procedure is simple. Firstly, a sales segment, such as a client group, is subdivided into sections. Each section is assigned to the respective turnover. Then the sections are loaded with their product use. This gives you cover contribution I. From this is deducted the directly calculable sales costs, which then give you cover contribution II which is important for making decisions. After deducting the production and sales overheads, you will have the annual figures (before tax).
Check the discontinued costs before making your selection!
From the cover calculation you will be able to ascertain the sections which qualify for selection. You should compare the cover contributions (which can also be negative) with the costs which are discontinued with the cessation of the section. These include commission for salespeople, dispatch costs, travelling expenses, other expenses, machine hours, etc… other costs can only be discontinued if relevant measures are taken: storage room should be reduced, the sales department streamlined, production cut down. These measures can be drastic, so you should check that the workforce they relinquish can be assigned to new, more profitable areas.
Do not introduce any average values
You should not introduce any average (mean) values into your calculation to determine the discontinued sales costs. This is demonstrated with the help of the following numerical example:
The overall costs of 200 client visits could be £50,000. This means that every individual client visit could be an average of £250.
In the following month 230 client visits are made, the overall cost of which is £54,500 which amounts to an average of £237 per individual visit:
If these 30 extra client visits prove to be unprofitable, however, the company should not presume that it is making a saving of £237 per discontinued client visit – instead, it should estimate a maximum of £150. This is the result of the discontinued visits and discontinued costs. We divide the discontinued costs (£4,500) by the discontinued visits.
The selective sales policy outlined here can either be a step towards purging unprofitable business or it can lead to its discontinuation altogether.
The elimination of unprofitable section
The elimination of unprofitable sections, such as certain order sizes/structures, or client groups, is usually managed by price policy. Prices are set and conditions attached in a way that result in positive cover contributions for the relevant section and, as a result of changed conditions, unprofitable orders or clients do not materialise. It is very rarely recommended to openly break off business relations.
It is difficult for sales managers to imagine relinquishing turnover. You should bear in mind, however, that loss-making sections, although you can attain a higher turnover level with them, in fact, weaken your future investment possibilities. A company which obtains a profit of £10 million with a turnover of £200 million is less competitive than a company which obtains a profit of £12 million with a turnover of £180 million.
You should, however, examine the loss-making section more closely. Loss-making sections in promising new markets can, in the long-term, register strong growth and emerge from the red into the profit-making category. Before making a final decision to eliminate sections you must, therefore, take a critical look at whether you can expect improvement in the future.
MARKETING STRATEGY AND COMPETITION
Assessing marketing strategies
It is the task of a marketing strategy to provide a route to and long-term plan of how to achieve marketing goals.
There are two important points in assessing a company’s marketing strategy:
Business fields
It is not a question of making a sweeping, overall assessment of the company as a whole. You should first check which products are suitable for a joint marketing strategy and which products must be dealt with individually (the same goes for services). You must, for example, examine which products are sold to the same buyer, which products have the same competitors in the market, which products are interchangeable and the relationship between production and manufacturing costs. This will provide you with sections, or business areas*, which require an individual assessment and marketing strategy.
(*Such business areas are also called “strategic business units” (SBU). A company’s SBUs are a conceptual or organisational summary of fields of activity, which have homogeneous characteristics in terms of production technique, market specification, competitive value and environmental issues).
Relative strengths and weaknesses
It is not a question of recognising absolute strengths and weaknesses. It is more the recognising of relative strengths and weaknesses in comparison to your competitors. A company may have no competitive advantage, for example, despite excellent manufacturing know how, if its competitors have the same level of manufacturing prowess. The company must note its strengths and weaknesses to see whether, over time, they will exceed those of the competition.
The list following provides an overview of the criteria on which the assessment of a company’s business fields are based.
ASSESSMENT CRITERIA FOR BUSINESS AREAS
* Development capacities * Personnel
* Profits * Buyer preferences
* Financing possibilities * Price policy
* Flexibility * Product characteristics
(technical).
* Image * Production capacity
* Investment activities/investment * Quality (characteristics from
the point of view of the buyer/
and his/her requirements.
* Readiness to supply * Supply of raw materials.
* Brand popularity * Range
* Marketing mix * Location
* Current market share * Respect for deadlines
* Previous increase in market * Process engineering
share.
* Organisation * Sales
Success factors in the market life cycle
Not all of the assessment criteria listed above, the so-called success factors, are always relevant at any one time. There are two aspects which determine the selection of the important success factors: 1. Areas of business and 2. The life cycle of the market.
According to the concept of the market life cycle, markets ‘go through’ four phases.
Formation phase
In the market’s formation phase, its future development is uncertain. There are a small number of product ranges and competition is limited to a few suppliers. Market share stability and client loyalty is still limited. There are good opportunities for other companies to penetrate the market and there is good potential for product development – i.e. it is worthwhile investing in the development of existing or new products. Any activities undertaken during this phase are unlikely to yield high profits.
Growth phase
During a market’s growth phase, market volume increases. There is then an opportunity to gain a strong market position. You can now extend your product range in order to canvass new buyers. Market share stability and client loyalty increase and there are even more opportunities for other companies to penetrate the market. Most suppliers make a profit.
Maturity phase
By the time a market reaches its maturity phase, it has attained its largest volume and begins to stagnate. This is a time when product ranges can be streamlined (especially in the later stages of the maturity phase). The first weak competitors begin to “drop out of the race”. Market shares usually remain stable. Price gains increasing significance as a competitive factor. Measures which are taken to reduce prices become growth strategies and a battle to extend your market share. As a result of the stability of market shares, expansions of this kind are usually no longer profitable. There are less opportunities for other companies to penetrate the market. The market has reached its peak of profitability.
Degeneration phase
During the degeneration phase, market volume starts to increase. It is, however, still possible to make a profit in a degenerating market by employing cost reduction and rationalisation measures. The degeneration phase ultimately leads to withdrawal from the market.
MARKET LIFE CYCLE
Turnover
Profits
Turnover
+
Profits
_ I IIa IIb III IV Timephases
The success factors vary according to the market phase in which the strategic business unit is in.
The chart below shows the importance of the above-mentioned success factors in each phase of the market life cycle.
Do not draw any analogies between the market life cycle and a biological life cycle of a human being. The phases do not necessarily need to follow the above pattern – phases can be skipped over and markets can go from a maturity phase back into a new growth phase. It is important to appraise each individual phase correctly, since each phase is governed by specific rules. Market forecasts are a precondition for preparing the right marketing strategy for the future.
THE IMPORTANCE OF INDIVIDUAL SUCCESS FACTORS IN THE MARKET LIFE CYCLE
Factors particularly Formation Growth Maturity Degeneration
important in: phase phase phase phase
Market share X O O
Increase in Market share X O
Sales prices O X O O
Cost situation X X O O
Image O O
Sales O O O
Product range X O
Flexibility in production O X
Development capacities O O X
Financial situation O O
Strength of profits X O O
System of management O O O
Fulfilment of further criteria O O O
Example of the importance of selected success factors (O “very important”, X “still important”).
After you have eliminated some success factors for reasons specific to the area of business and others because they are not important, you will be left with only the relevant ones. These are called the “critical” success factors, because they are crucial for the advantages and disadvantages associated with success or failure of a company.
Assessing an area of business on the basis of its relative market share
There is a simple procedure by which a company’s competitive position is assessed exclusively according to one success factor: the so-called relative market share.
Relative market share is defined as: a company’s quantitative market share divided by the quantitative market share of its strongest competitor with reference to the SBU (strategic business unit) concerned.
The relative market share serves as a measure for the company’s strengths in the relevant market.
Example 1: The individual quantitative market share of an SBU is 40% and that of the strongest competitor is 30% (your own SBU is therefore a market leader in this particular market). The relative market share: 40:30 = 1.333.
Example 2: Your own quantitative market share is 20% and that of your strongest competitor is 40% (in this case your competitor is the market leader). The relative market share is 20:40 = 0.50. This means that the turnover of your own SBU is only 50% of that of the market leader.
The market leader always uses the comparison of the second strongest competitor and is the only one to have a relative market share greater than 1, all the other companies get their bearings from the market leader and subsequently have a relative market share of less than 1.
Relative market share is very well-suited for comparisons within a company. If two different SBU’s in a company have a market share of 30%, the company may be a market leader in one of the SBU’s but lag behind its competitors in the other.
Cost advantages
The quantitative relative market share is therefore important, because it is assumed that there are cost advantages associated with production volume. The market leader must therefore (depending on qualitative market share) always benefit from (potential) cost advantages. The further a company is lagging behind the market leader in terms of quantity, the weaker its competitive position is.
If you realise that you only have small relative market share, you should stick to the following rules:
· Do not get involved in any price wars, which the market leader usually wins. The market leader has greater potential to reduce its costs (volume effect).
· Look for a niche in the market, in which your offer has advantages i. e. find a market segment which you can serve better than the market leader.
· Try and tighten up your product range. By having a small product range, you can compensate for cost disadvantages vis-à-vis the market leader. You can also work profitably with a small market share.
Running cost control
You should never rely on a strong market position, irrespective of whether you are the market leader, second or third strongest competitor. It is essential to carry out a running cost control. Manufacturing costs should decrease the more production experience you gain, even if the production volume remains constant.
You should, however, never withdraw from a market for the sole reason that your company has a small market share in comparison to that of your competitors. Your competitive ranking demands on other factors too.
Assessing an area of business on the basis of several success factors
If there are set factors on which the success of a business field depend, it is possible to determine for each business field whether the situation of the company is worse, better or the same in comparison to that of its biggest competitor. The assessment is based on expert judgements of one’s own company or of management consultants with which the company is working. In addition, the company’s marketing department should systematically collate all the information there is available from the financial press, as well as information on clients, suppliers or other business partners.
The results are entered into a table as follows. The last column or row contains the assessment of the overall situation, based on the respective competitor (column) or on the respective success factor (row).
Two examples are: with regard to market share, a company has a competitive advantage over three competitors and a competitive disadvantage vis-à-vis one. The “market share” factor is therefore assessed as “slightly advantageous”. The assessment of the cost situation is uncertain, since the company lacks information on competitor C. The overall assessment is therefore somewhat cautious.
We act in an analogous way in the face of our competitors. For example, a company has a competitive advantage over competitor A in most factors, but finds itself at a disadvantage vis-à-vis others. The overall assessment is therefore “at a slight advantage”.
It is simple to assess the situation vis-à-vis competitors B and D (at a clear advantage/disadvantage). The assessment vis-à-vis competitor C is uncertain, because the company lacks information on two factors. This business area’s situation is assessed as “very slightly advantageous”.
THE ASSESSMENT OF A BUSINESS ON THE BASIS OF CRITICAL SUCCESS FACTORS
Competitor A B C D Overall
Assessment
Success factor
______________________________________________________________
Market share + + + - (+)
Cost situation + + ? - (+)
Sales prices + + - - o
Quality + + - - (+)
Sales - + + - o
Development capacities - + ? - (-)
Image/brand popularity o o + o (+)
Product range o o - o (-)
Overall situation, based on
the respective competitor. (+) + ((+)) - ((+))
+ advantageous (+) slightly advantageous
o neither advantageous nor disadvantageous
((+)) very slightly advantageous ? assessment is uncertain
(-) slightly disadvantageous
Assessing the market attractiveness of an area of business
In practice, there are three methods of determining the market attractiveness of a business field: the simplest method is by exclusively observing quantitative market growth. A market appears more attractive the more growth it can register. This procedure has, however, proved too simplistic and has not proved its worth in practice.
The second method draws on the phase in the market’s life cycle in which the business field currently finds itself. The life cycle characterises the growth potential and stability of a market. The younger the market is, the greater the growth potential is, but it is also less stable. As a result of this high risk factor, young markets are not particularly attractive to medium-sized companies.
The third method is more comprehensive. It not only investigates the phases in the life cycle of the market, market growth and stability. It also investigates the economic and political risks: cheap imports, energy and raw material supply, inter-changeability possibilities and technical development, which represent opportunities as well as risks.
Flexibility and market stability
When assessing market attractiveness, the comparison of market stability and a company’s flexibility is becoming increasingly important.
A market, which is assessed as being very stable is seen as very attractive if a company has a high degree of flexibility, but less so if it has a lesser degree of flexibility. Less market stability and high company flexibility on the one hand, as well as high market stability and less company flexibility on the other hand characterise an averagely attractive market.
Market analysis and business field analyses are conducted within the same portfolio.
The analyses outlined in the last two sections should be brought together in the same assessment portfolio. They will form the basis of your company’s fundamental strategies.
First of all, the company activities are divided into business fields, then you determine the strengths of each business field.
Competitive and financial strengths
If a company has a competitive advantage, in most of the success factors of a particular business, over the majority of its competitors, that company’s competitive strength can be classified as “high”. If, on average, the company is just as strong as its main competitors, its competitive strength is classified as “average” and if the company is competitively inferior to its competitors, its competitive strength is classified as “low”. The company’s financial strength is compared to this assessment, as well as the financial strength of its competitors. The reason for this is simple: if a company has low competitive strength, but good financial strength, there is room for improvement. If a company’s competitive strength is high, but has poor financial strength, however, the competitive advantage is barely sustainable. The best situation is to have a combination of good competitive and financial strength.
The attractiveness of different areas of business
The attractiveness of different areas of business is the result of a comparison of your company’s own flexibility and the stability of the market. A low degree of flexibility and a low degree of market stability have to be assessed very negatively. The reverse is the result of a high degree of flexibility and a high degree of market stability.
A few concluding remarks:
· Bear in mind that financial strength is always viewed in comparison with the respective competitors in the respective market. That is why financial strength is high one time, twice medium and once low.
· The portfolio does not provide a ready-made strategy, but it does give good indications as to the strategy you should pursue.
· The portfolio technique has proved itself to be a useful analytical instrument in many companies – it is by no means a theoretical gadget. This and similar analytical instruments help objectify discussion within the company.
Panel research: information for marketing
Household panel to monitor marketing efficiency
A panel is a sample survey of people, who you constantly observe. The primary task of panel research is to record changes in society or in the market.
Specialist panels
Household panels record the consumer patterns of private households. Non-private households include hotels, guest houses, hospitals, as well as all companies and public organisations. There are “specialist panels” to record the consumer patterns of these. There are specialist panels for hospitals, old people’s homes, nursing homes and guest houses.
Individual panels
Alongside household panels, there are also so-called individual panels. These do not record the consumer patterns of households, but the consumer patterns of private individuals. Examples of this are smoker panels and baby panels. The investigative and assessment methods are similar to those of household panels, which will be dealt with in the following section.
Since household panels do not record total consumption, but only that of private households, it is impossible to make an exact statement about the overall market. The work of the household panel is called “coverage” and in most markets this amounts to about 70% of the overall market.
Coverage effect
This is sufficient for most consumer goods markets. Companies who obtain most of their turnover from large-scale clients have to decide whether they want to acquire data from further specialist panels or whether they can investigate these markets using their own resources.
Panel effect
Panel households fill in a comprehensive questionnaire once a week, reporting details of their consumer expenditure. They provide details about when they bought which products, at what price and how many. By keeping a note of all consumer expenditure, over time it is possible to discern slight shifts in consumer patterns. If you keep an eye on your expenditure, you become more aware of what you buy (more aware of price and/or quality. This is called the panel effect. To balance out the panel effect, 20% of the panel households are replaced every year. This means that each household has a place on the panel for five years. Since the principal aim of the household panel is to record changes in the market, the slight shifts associated with investigative problems are justifiable. The panel usually reacts extremely sensitively to changes.
Household panels provide a wealth of information which is important to marketing decisions in the consumer goods sector. The following information is available:
The sociodemographic characteristics of buyer and non-buyer households. A buyer household is a household which, during the course of a period of analysis, has bought at least one particular brand product or product type. A distinction is made between buyer households based on product brands and buyer households based on product types.
Buyer structure
The buyer structure of a product brand or product type (i.e. the question of “who” buys) is recorded on the basis of the following sociodemographic characteristics.
· Net household income
· Occupation of the housewife
· Age of the housewife
· Size of the household
· Number of children in the household
· Location of the household
· Side of residence
· Occupation of the head of the household
Psychography
Every sociodemographic characteristic is consulted, which underlie the target group descriptions. The sociodemographic characteristics are, however, becoming increasingly less approporiate for explaining consumer behaviour. Increasingly, psychological characteristics, such as pleasure, value, lifestyle and family orientation are also being used to describe households.
The type of purchase is investigated by recording the following data:
¨ Type of product purchased
¨ Brand name or manufacturer’s name
¨ Type of packaging
¨ Weight of packaging
¨ Number of packages brought
¨ Price per package
¨ Specific product characteristics
¨ Name of point of purchase
¨ Type of shop (specialist shop, discount store, consumer market, etc….)
¨ Date of purchase
Report periods
Reports from companies who collect all this information are written at different times, which are called report periods. Report times are shorter the more often the articles under investigation are bought by the consumers. The shortest report periods are therefore registered for fresh foods such as yoghurt and the longest report periods are registered for consumer goods which have a longer shelf life. It is true that it is not possible to record short-term reactions to movements in the market if report periods are longer, but it is sensible to carry out an analysis of longer term trends.
With the help of the information gained, it is possible to see which measures function in which businesses and analyse how they function, as well as seeing which measures may possibly be necessary in certain types of business.
Monitoring through indicators
You should make regular use of the following indicators from your regular reports on household panel research:
¨ Market share and changes to market share in the overall market and in the various different market segments according to volume and value.
¨ Buyer ranges. By this is meant the total number of households which purchase the product concerned at least once during the report period. Since a household can purchase several competitive brand products within the space of a report period, the overall total of all the competitive brand products is greater than 100%.
Repeat buying
- The rate of repeat buying. By this is meant the percentage of households which purchase an item more than once during a report period or the percentage of households which purchase a new product a second time.
- Average volumes per purchase and the average price per package/per purchase.
Market potential
- The relationship between purchasing intensity based on one brand product in comparison to the overall demand on the consumer households for product ranges. This indicator predicts the amount of market potential each brand product has. If, for example a brand product covers the overall need of a household 100%, it is only possible to extend turnover by canvassing new consumer households. If the purchasing intensity related to a particular product only amounts to covering half of consumer households’ overall needs, turnover can be increased by intensifying the consumption of this brand product. You must ensure that consumers who normally switch between different brand products become loyal clients of your particular brand.
The indicators mentioned above allow a company to recognise trends in consumer behaviour in good time and therefore react to them quickly.
Never focus your market analysis exclusively on average indicators. Always find out the relationship between average indicators.
In-depth analyses
a) Price/volume relationship
All average indicators can be broken down according to different market segment and composition i.e. they can be broken down according to frequency. The average price of a product is too rough an indicator to describe a market’s price ranges, for example. We often find a strong concentration in both the higher and lower price ranges, whilst the medium price range (arithmetically the average price) is under subscribed.
b) Varying intensity of purchasing behaviour
Purchasing households are assessed according to how often they have purchased a specific item within its report period.
c) What volumes are purchased?
It is not only important that companies can determine how often households purchase goods but that they are also able to determine the volume per purchase, in order to carry out an exact market analysis.
d) Market shares in different segments of the market
The overall market is not examined in one fell swoop – instead, the differentiation is made according to the quantitative consumption per household.
Gain and loss analysis
It is conceivable that greater exchange movements within layers of purchasers are hidden behind smaller market share modifications. This information is important for marketing, since it makes a great difference if new users are canvassed for a strategy of market share extension (i.e., if previously loyal purchasers can be wooed away from competitors’ products) or if those who frequently switch between brand products must be led to buying your own brand products. It is far more difficult to encourage loyal brand product users to switch brands than to stabilise the behaviour of those users who frequently switch brands.
Market panels to control sales and all goods movements on the market
The problem of coverage
Market panels allow you to see the movement of goods on the market. They do not, however, provide you with exact details of the overall market. They only provide a partial covering of the market, which is designated as “coverage”. The problem of coverage is partially a result of the fact that each panel only concentrates on a particular area of the market. The panel does not record the movement of goods out with its remit. It is a financial matter whether companies draw on data provided by several different panels. The problem of coverage is also partly attributable to the fact that some commercial enterprises do not participate in panel research. The remaining information is urgently required for the sale of proprietary articles, however.
Since the market is structured in very different ways, it is necessary to have different panels. It is up to you to decide which panels are relevant for the markets in which your company operates. Even if one single panel does not cover the entirety of the market, it is normally sufficient for the purposes of a market analysis if the panel you have chosen covers 70 to 75% of the overall market.
Household panel indicators
The following indicators which have emerged from household panel research make it easier for companies to monitor their sales activities.
a) Distribution indicators
“Leading distribution” – this records the number of markets in which the product concerned is a market leader. A distinction is made between weighted and numerical distribution. “Numerical distribution” provides the leading businesses as a percentage of all businesses under investigation. Let us assume that we are investigating the foodstuffs retail trade. A numerical distribution figure of 40% of all foodstuffs retail shops. “Weighted distribution” provides the market importance of the leading distribution shops for the product concerned.
Let us assume that a leading hair product has a numerical distribution figure of 60% and a weighted distribution figure of 80% (60/80) in the foodstuffs retail trade. This means that 60% of the markets in which “a leading hair product “ is a market leader, amount to 80% of the total turnover achieved by the foodstuffs retail trade in the area of hair products.
“Buying distribution” – this relates to those shops which have purchased the product concerned (from the manufacturer) at least once in the last eight weeks (a period of analysis almost always used in household panel research.
“Selling distribution” – this indicator records those shops which have purchased the product concerned at last once during the last eight weeks.
Both purchasing and selling distribution are identified as numerical and weighted.
Stocking up
Stock gaps. This records those shops in which the product concerned is a leader, but which at the time of investigation, were out of stock. If we say that a brand product has a numerical distribution of x%, this also includes stock gaps. The percentage described by stock gaps, is however, always based on the overall total.
Let us take the example of a household panel, which has an overall total of 100,000 shops and that the product under investigation has a numerical distribution figure of 80% and a stock gap of 8%. This means that the product concerned is the leader in 80,000 shops, but that of these, 8,000 shops (8% of 100,00) are permanently out of stock; this in turn means that in fact 10% of the shops in which the product is a leader have an insufficient supply of stock.
Above average or increasing stock gaps are always an indication of sales problems. A company should always analyse stock gaps separately according to sales areas. It is thereby possible, on the other hand, to compare the stock gaps in various different sales areas and eliminate over-proportionately high stock gaps. On the other hand, it is possible to carry out a comparison of stock gaps with those of your competitors. Salespeople often justify sales gaps on the basis that the market does not order enough. In order to assess the validity of this statement, it is necessary to carry out the above-mentioned comparisons.
Shops in which a company’s product is a leader, but which occasionally run out of stock are inevitably contributing to their own turnover losses. The stock gap indicator shows up how many shops on average are “out of stock” on a particular day.
b) quantitative and qualitative market share
Quantitative and qualitative market share is certainly an important indicator for successful marketing. A company must realise that the market share indicated by the household panel can always be solely based on the volume of the product under investigation by that panel. If you are a manufacturer of meat spices, for example, your products are not only sold to the foodstuffs retail trade, but also to specialist shops and stores (butchers). Both sales tracks are investigated in different panels, however. It is therefore conceivable that a company may be the market leader, in the foodstuffs retail trade for example, but it is not the market leader in the overall market, if the market significance of other sales routes is sufficiently great and other brand products have secured the position of market leader.
Changes in market share
Particular investigative attention is paid to changes in market share over a particular period of time. It is not only important to a company to know that it has a market share of 42% for example. It is also important for it to know whether this will increase or drop in the longer term.
When assessing market share you must always investigate both absolute and relative market share. The market panel indicates absolute market share. You must also calculate relative market share, however: your own market share divided by the market share of your strongest competitors.
Relative market share gives you an indication of your position in the market. If your relative market share is smaller than 0.1% you have few future opportunities open to you in the market.
For example, if your company has a market share of 10% in a particular segment of the market, this suggests that you have a really strong position in the market, if, for example, there are a lot of suppliers in a heavily fragmented market and the second strongest supplier only has an absolute market share of 5%. Your company’s relative market share is then 2 (10.5). If the market leader in this segment of the market has a market share of over 50%, however, your company’s relative market share is only 0.2 (10.50). absolute market share therefore clearly does not indicate very much.
c) Indicators about the flow of goods
Average unit sales per shop. This indicator shows the total amount of sales in the shops in which your product is a leader. Sales are additionally analysed over a certain period of time in order to draw conclusions about the success of your company’s marketing strategy. Sales are usually based on monthly figures. If the data you have collected reveals an item value of 7.5 this means that those shops included in the “leading distribution” category, sell on average 7.5 units of the product concerned. The indicator “average unit sales per shop” is often very low and therefore does not seem to correspond with a company’s expectations. You should know that sales indicators are based on the overall market – i.e. the smallest foodstuffs shops are given the same consideration in the investigation as the largest consumer markets. Since there is a small number of large consumer markets in comparison to the number of small shops, the average indicators tend to be small. Sales indicators would therefore be separated according to the type of shop.
The “Average quantitative sale per shop” is an important indicator for consumer acceptance of the product. A company’s marketing strategy can only be successful in the long-term if this indicator remains constant, or increases.
Average sales price per product: this indicator highlights the relationship between price policy and consumer reactions. With the help of this indicator, a company can test consumer acceptance of its price policy and compare it with that of its competitors. This indicator should also be analysed separately accordingly to shop type (consumer markets, discount stores, specialist shops and stores, etc…).
Average market purchasing from manufacturers: this indicator (which is always expressed in quantitative terms) highlights the success of targeted campaigns to get the markets to buy from manufacturers. It also provides manufacturers with information about the stock composition of the market.
Even if sales determine the long-term success of a company, you must take care that your competitors are not selling more to the market than you are, otherwise you will run the risk of losing shelf space and thereby sales possibilities on the market.
Stocking periods: As a result of its particular importance, stocking periods are given a separate mention. You can calculate stocking periods as follows:
Stock
______________
Monthly sales = monthly stocking periods
Type of stock
The market panel also provides you with information about the type of stock. It can indicate what percentage of stock is actually available in the sales area (and how much of this is in other shelf space) and what percentage of the product is stored outside the sales area. These details are also analysed over certain periods of time and compared to the statistics of your competitors. It is, of course, in a company’s interest to have as much stock on show in the sales area as possible, since only this part of the stock is sales-effective.
Special displays
It is also in a company’s best interest to have as much of the stock in the sales area on special display, since the sales figures of items on special display are three times higher than the sales figures of normal shelf items.
Market stock levels are an indication of how often salespeople should visit clients to eliminate stock gaps.
You must consider, however, that we are dealing with an average value. In many shops stock levels are much lower. You must therefore manage stocks according to the different shops involved. Always compare the development of your own stock value with that of your competitors. If the market reduces the stocks, you must take care that your own stock level does not drop more than that of your competitors.
Differentiated analyses
The data collected from market panel research is not only country-specific. It is also specific to:
- Regions
- Shop type
- Selected organisational forms
- Sales areas
Market panels and household panels compliment one another
The market panel provides you with information about the movement and level of goods on the market, but does not provide any information about consumers and the products they buy. The household panel, on the other hand, provides you with information about the consumer behaviour of private households. Market panels and household panels therefore compliment one another.
In some markets it is better not to compliment your market panel with a household panel, but to compliment it with a so-called individual panel. It is best to use an individual panel if your company needs more information about individual consumer behaviour. An individual panel does not investigate what households buy which products – it investigates which individuals buy which products (for example: food panels, etc…)
CORPORATE IDENTITY
The aim behind the corporate identity concept
Company personality
There are just as many definitions of the term corporate identity as there are for marketing. Of all the existing definitions, the one provided by Birkigt & Stadler (1986) seems to be the most comprehensive: “We view corporate identity parallel to individual identity as the conclusive combination of a company’s appearance, words and deeds, or specifically the combination of a company’s behaviour, appearance and communication and the hypostasized company personality as the manifest way the company sees itself”.
It therefore basically boils down to the organisation’s identity. We can roughly interpret company identity as the totality of all its characteristics. It is thereby assumed that it is easier for a company or a person to present themselves in public if they have a person-like identity. Having an identity makes it easier for an organisation to be recognised by the general public and it also means that the company employees have guidelines on which to model their behaviour.
Questions raised by the concept of corporate identity
Corporate identity policy is the concept of consciously presenting the company’s personality in form, communication and behaviour. A company’s corporate identity is therefore compiled on the basis of the answers to the following kinds of questions.
· Who are we?
· What do we want?
· Why do we want this?
· Who are our partners?
· Who are our competitors?
· Who do we want to stand out against?
· What ensures our long-term survival?
· In what are we unique?
· What can we be proud of?
There are also questions as to the transportation of a company’s identity.
¨ What do we look like?
¨ How should the general public see us?
¨ What are our signs and symbols?
¨ What media do we use?
¨ What are the distinguishing features of our style of communication?
¨ What styles and colours suit us?
¨ What is the source of our uniqueness?
¨ What parts of our appearance/image can we and should we change?
The corporate identity programme is created following factors into account:
¨ Communication
¨ Company descriptions
¨ Company trade mark
¨ Company colours
¨ Architecture
¨ Selected type of typography for all letters and pictures
¨ Style of argument in public
¨ Managerial and employee behaviour
The clearer your corporate identity concept is formulated, the easier it is for your employees to conform to this, which, in turn, makes your corporate identity more effective.
A clear-cut company identity also has financial advantages and consequences, which has a positive effect on recruiting and fostering company loyalty. It also enhances your standing in the eyes of clients, suppliers and banks.
Corporate identity has three component parts: corporate behaviour, corporate design (image) and corporate communications.
Corporate behaviour
Behaviour within the company and outside the company
Corporate behaviour refers to a company’s behaviour towards its buyers, competitors, investors and the general public within the company itself (style of management) and outside the company (contact with clients). It is the responsibility of management to ensure that the company philosophy in practice becomes the guideline for the behaviour of all company employees. The concept of corporate behaviour will only become credible and effective if it is put into practice daily.
Corporate design
Every human being is exposed to more information and stimuli than they can take on board and either cannot or will not categorise every stimulus. A consistent corporate identity concept makes sure that every company statement is easily associated with the company.
Structural transposition of corporate identity
If a company’s corporate identity is to be used to financial advantage, it must be structurally transposed so that it is automatically recognisable. In practice, many corporate identity concepts begin with the development of an appropriate company symbol or company colour(s). The aim is to make all the company means of communication distinctive and easy to remember. Corporate design should arouse a liking and preference for the company.
The fundamental principles of corporate design (i.e. to which items the company symbols should be affixed and what form these should take) should be recorded in writing and you should never deviate from this list.
The concept of corporate design should not, however, be limited to formal, graphic designs. These are only a precondition for a vibrant corporate identity.
Corporate communications
Every statement which is in some form or another associated with the company and every communicative measure must be in accord with the company identity. This concerns all areas of communications mix, such as public relations work, advertising, consultancy meetings, company prospectuses and even the text of your answer machines.
There is a holistic phrase which states that the whole is more than the sum of the component parts. Communications become qualitatively better by consistently pursuing a uniform strategy within the framework of the corporate identity concept. This, in turn, makes communications more effective and eventually more economical.
Incorporate company employees into the development of corporate identity
Since corporate behaviour and corporate communications also affect company employees, it is very important that employees are incorporated into the development of the corporate identity programme.
Corporate identity is the transposition of an integral corporate presentation in accordance with corporate activities. Corporate identity must therefore grow with the company. When developing its corporate identity, a company can seek advice, but it must not allow external consultants to “impose” its corporate identity from outside. Identity must “come from within”.
MARKETING ORGANISATION
Sales as a integral part of marketing
Marketing is no longer the responsibility of only one department. It is a way of thinking which must be understood by all company employees: consistent market and client orientation!
Sales is one of the functional areas of marketing. In practice, however, the marketing department is often affiliated to the sales department as a kind of service department. As such, sales is subordinated to one of the functional areas of marketing. Companies which are organised along these lines have not yet completely formulated their thinking on marketing. They remain sales-orientated, not market-oriented.
Marketing and sales as one and the same
Nowadays, sales must be viewed as a part of the marketing organisation. The marketing and sales departments form a whole, which has to fulfil all the activities channelled into the sales market. Through long-term, market-oriented concepts, it is the job of marketing to create the preconditions to facilitate the realisation of salespeople’s goals in the market. Successful marketing therefore requires the co-operation of all organisational units.
Complete marketing organisation
The organisation of sales
Sales management falls under the control of both domestic and international (export) sales management. As a result of economic integration in Europe, overall co-ordination of all sales activities is required.
Key account management
The increasing concentration of trade and associated purchasing power has led to the incorporation of Key Account management in manufacturers’ organisational structure to deal with large-scale clients. Clients are now viewed as important partners in the foreground of sales policy considerations.
The co-ordination of key account management activities is an important task of sales management. The system of conditions in particular must be faultlessly structured. Often important managers on the market side change company. How will a top buyer react if they change from A to B and realises that for years they have been receiving a worse set of conditions for buying larger quantities from company A than is being imposed by company B (for smaller amounts)? They will hardly accept that they had negotiated poorly with company A. They are far more likely to blame the supplier. A well known company in the consumer goods industry lost one of its most important clients this way.
The organisation of the marketing department
The marketing department often consists of operations managers (market research, public relations, sales promotion, advertising etc.) and product managers. The main task of product management is to take care of the profit side of the products it is responsible for and to oversee the development of new products based on client requirements. The organisation of product management can be based on different criteria: according to purchasing groups, markets or products. Product managers are usually staff managers who have a specific specialist knowledge of the market, but who have no direct decision-making powers. In practice, this discrepancy between responsibility and competence can cause conflict.
It is the job of marketing management or product management to co-ordinate the strategies of individual product areas. Whereas the Key Account manager thinks in terms of client-specific strategies, product managers are responsible for product or market-specific strategies. This difference in “thinking” is another source of potential conflict between the sales and marketing departments.
The co-ordination of the different operational areas, especially that of Key Account management and product management, is one of the most important factors in successful marketing.
The co-ordination of both large areas (marketing and sales) is the direct responsibility of company management. If the idea of marketing is realised at this level, the concept of market-oriented company management is guaranteed.
We hope that you have this marketing training material useful. If you want to further you understanding of marketing please view our marketing training course by clicking on the link.
