Is your marketing concentrated in area that makes a difference?

Identifying your customer segments is imperative in your future marketing efforts. If you have not identified those segments well, you will be discounting, providing unpaid services and minimizing profits to be competitive in the market place. Customer (Market) Identification is not easy. However, it may be the most important task that marketing has within your company.

First look at how you determine pricing, paraphrased from the The Going Lean Fieldbook:

Do you look at pricing from the standpoint of a cost plus or from the standpoint of what the customer is willing to pay for the value you receive?

Taiichi Ohno felt that most companies set their pricing models incorrectly and said, “When we apply the cost principle selling price = profit + actual cost, we make the customer responsible for every cost. This principle has no place In today’s competitive automobile industry…The Question is whether or not the product is of value to the buyer.”

Toyota shifts the equation around in a way that is mathematically equivalent but creates an entirely different meaning: selling price – actual cost = profit. The company recognizes that customers not the company assess the value of its products. And, like it or not, it is customer perception of value that forms the basis for pricing. Setting a sticker price higher than this will only drive customers to competitors’ more reasonably priced products.

As a result profits are not set by the company but they are simply the difference that the customer is willing to pay (their perceived value) and what it takes the company to produce it.

This is a subtle difference but important. As Dr. Reidenbach said in a guest blog post, “Is your price worth it?” Are you adding a perceived value to the product? Many resellers and small shop owners struggle with this and the internet has played a large part of changing the landscape as we see it. All products are commoditized, practically instantly. The difference in price can only be justified by the value your customer places on the service you provide.

If this is the case, would we not be better off trying to concentrate our sales and marketing efforts on growing the areas that our customer values. The Critical to Quality points (CTQs) that are important to our customer. In the diagrams, I try to depict the old model of pricing where we create demand and support material and labor through expenses. At the end of it we determine what profit we want to make and add it. The new model is that the customer determines the value that you add to the product through the price they are willing to pay. If they determine that your services does not warrant the price, they typically have multiple sources to choose from. If you are reseller, they can probably get the exact same product.

When you look at your sales and marketing resources and budget you might be surprised to find that they are not addressing the CTQs. The real reason a customer buys from you. Many times, I see resellers and retailers marketing products that are carried by numerous others and many of them at perceived lower prices. They actually are advertising for lower profits.

Shameless plug: Dr. Reidenbach and I have put together a program called the 5Cs of Driving Market Share. The first step in the process is Customer Identification. Though the process is based upon the problem solving principles of DMAIC, it was created for anyone to understand and use. It does not require a proficiency in Six Sigma.

You can also listen to a podcast that discusses many of the principles:
Applying Six Sigma Marketing to become Best In Market