3 Part Market Research Papers (Vol 3)
By Kelly Lusson
Volume 3
The Purpose of Market Analysis
Introduction and Recap
In this third article of a three-part series, I will provide my recommendations for connecting our improved understanding of the market to our sales process. In my first article, I mentioned that to develop a market analysis is to gain understanding. Understanding is the “who, what, when, where, and how” of the demand drivers for a product or service. Once we’ve improved our understanding of our current market space, including core industries or sectors, growth projections, and key competitors, the next step is to use this snapshot to more effectively sell our product or service in the short and long-term. Our ultimate goal is to turn present and historical information (looking in the rear-view mirror) into a realistic plan for future growth. To reference the analogy I mentioned in my first article, marketing is the process of building the bridge. Sales is the process of crossing it.
If you’re conducting a market analysis for your company, I recommend organizing your research into three primary groups. In my first article, I discussed beginning a market analysis with a high-level, top-down snapshot to validate your areas of focus. In a second step, I recommend supplementing your data with a more bottom-up analysis of competitors, in order to better understand who your company is up against and develop a benchmark for your performance (see links). In this article, I will discuss formulating your “go-to-market” strategy, to identify new customer leads and determine your best approach.
Formulating Your “Go-To-Market” Strategy
Purpose:
My previous articles have been focused on developing a snapshot of the present state, but our ultimate goal is to turn present or historical information into a realistic plan for the future. One of the most important takeaways from this exercise will be potential-based resource allocation. This involves putting your people in an ideal position to sell your product or service, and removing internal or external barriers. Ideally, from our work thus far we have an idea of the general size of the market, we’ve validated our areas of focus, and we know who we’re up against. From this information, we should be able to determine whether our market strategy is to attack or to defend our current market share. This is not only vitally important for growth, it’s a means for survival. If you are not growing at least as much as your competitors, you are losing market share.
Methodology:
Forensic Business Development:
In a first step, take a look at the purchase history for all of the customers you’ve sold to in the past 3-5 years. The goal of this exercise is three fold:
Understand why we’ve lost business in the past, and set up a tracking method for the future
Determine where we could sell more to existing customers by providing a better solution
Gain referrals moving forward
For inactive customers (no sales in the past 12 months), call or visit to determine the following:
Does the customer still have a need for your product or service? If so, have they purchased from your competitors, and why? Think in terms of delivery, price, quality, capabilities, relationship, etc. It’s a good idea to frame this as a continuous improvement initiative, i.e.: “We’re always trying to become better at what we do.”
If the customer no longer has a need for your product or service, would they recommend your company to another customer? This is a good way to gain referrals.
For active customers (sales within the past 12 months), call or visit to determine the following:
Does the customer buy exclusively from your company, or also from another supplier? What percentage of what they need do they buy from you versus your competitors?
If they purchase from competitors, what needs are we not able to meet, and why? Again, think in terms of delivery, price, quality, capabilities, relationship, etc.
Build the relationship by trying to understand the customer’s pain points, and how your company might be able to help.
Segment Your Customer Base
For both active and inactive customers over the past 5 years, it can be useful to conduct a sales analysis in order to segment the customers into account groups. The ease of doing this will depend partially on the flexibility of your current ERP or account management system. We will attempt to draw a few useful conclusions from this analysis, so generally speaking, the more data points, the better. However, the most important of these would be the total amount purchased by the customer within any given year. Furthermore, I would say that the discount level or customer type (distributor, OEM, end-user, etc.) would be the second most helpful piece of information.
I recommend to start by filtering each year by highest purchase amount. I would then separate customers into four groups by the total purchase amount per year: Top 25% through bottom 25%. We can label these customer groups “Mega”, “A”, “B”, and “C”. You can also determine the average purchase volume by customer, and create visual representations like the following:
What are our key takeaways from these charts? From the chart on the left, it is important to note that 15% of our customers make up 86% of our total sales. This 15% is comprised of our “Mega” and “A” customers, which are grouped as such because they are within the top 50% of customers in terms of purchase volume. The chart on the right paints an interesting picture as well. Out of our 18% average growth last year, 85% of it came from our “Mega” and “A” customers. In fact, our “B” and “C” customers actually purchased less from us than they did in the prior year. Assuming that customers are (on average) buying as many products or services from us as possible, we should be spending far more time and resources on our “Mega” and “A” customers than on our “B” and “C” customers. This doesn’t mean that you should neglect your “B” and “C” customers, but assuming you have a finite amount of time and resources, you should invest your time and attention accordingly.
There are a hundred ways to slice and dice your customer information, but the main goal of this exercise is to identify the greatest common denominators of your ideal customers. What characteristics do your best customers share? Is it sales volume, favorable relationship, the size of the company (revenue or employees), the type of product or service purchased, quantity of orders, design specification, industry, market sector, location, or source of business development? Who are your favorites, and why?
Next Steps:
Win Back Lost Business: Your first priority should be to win back any business you’ve lost (due to reasons within your control). This is your low hanging fruit: you already have the relationship (however damaged), and you’re in touch with the key decision maker. This may require you to make promises or provide concessions in the short-term, but your ability to win back this business demonstrates improvement, and will ultimately help you to win new customers in the future. Incentivize your sales resources accordingly.
Build (a few) Lists: Use the common denominators you’ve identified to create a database of all existing potential customers. Finding the right combination of criteria might take a few tries. Ideally, at least half of your current customers should show up on your potential customer list. The next step will require vetting of the list, in collaboration with your sales team. Your successful sales people should have a good idea of who is a potential lead. If they feel that the customer is not a good fit, be sure to ask why. The following sources can help you to build a customer lead list:
Subscription Databases: Many business development databases like Hoover’s and ThomasNet allow you to develop a list of leads based on dozens of filters (common denominators).
Trade Associations: If you belong to a trade association which is specific to your company’s industry or sector, you may be able to request a list of leads for a (small) charge, or as part of your annual dues. Some of these associations maintain subscriptions to business development databases (so you don’t have to shell out the full subscription fee).
Conferences/Trade Shows: Ask your best customers what trade shows they plan to attend over the next 6-12 months. Have your sales and marketing resources research the list of attendees, and plan ahead: luck is where opportunity meets preparation. If you have a strong relationship with a customer in attendance, ask them to provide an in-person testimonial for you at the conference. Nothing will speak more highly to a potential customer of the value your product or service can provide.
Social Media Platforms: Use social media platforms like Linkedin to identify your ideal point of contact within each potential customer. With a low-cost subscription, Linkedin will allow you to pinpoint the key decision makers within a company, i.e.: Plant Manager, VP of Engineering, Director of Purchasing, etc.
If your list is too broad, or too narrow, I would advocate starting with a narrow list (highest fit with the common denominators of your best “Mega” and “A” customers), and working outward to include the criteria for your “B” and “C” customers. If your product or service is industry agnostic, it might help to segment your current customer base by industry and profitability. Focus first on the industries in which you can provide a high-quality, low-effort, or high-profit solution (improve your reputation and your bottom-line). Again, the purpose is not to neglect customers, but to create focus on top priority leads.
Hunting vs Gathering
We know how much they bought, but what could they have bought? Let’s assume your priority is to sell more to existing customers (gather) rather than gain new customers (hunt). This requires more in-depth sales analysis, and depending on the size of your customer list can be a more tedious process. Start by looking at the customers who buy everything they can from you. This is your goal: 100% penetration. Again, identify the common denominators between these customers (revenue, number of employees, industry, sector, etc.), and then apply these criteria to your former, current, and potential customers. This should give you some indication of which customers could potentially buy more from you.
Some strategies to increase customer penetration are as follows:
Collaborate with design engineers. If you can provide a complete solution which makes their job easier, you’ve gained a long-term customer.
Host lunch and learns to educate clients about the solutions you’re able to provide. Provide Continuing Education credit as an added value if at all possible.
A long-term investment: donate your time and resources to colleges and universities. The mechanical engineering students of today will remember the solutions your company can provide in the years to come. This also looks great for your company’s community involvement, and as a bonus, you can use this method to vet talent resources.
In Summary
Depending in the product, industry, and potential customers, an in-depth market analysis can be very tedious and time consuming – particularly if the researcher doesn’t know where to begin. I find that this is particularly true for companies who assign a sales or marketing resource to conduct market research on top of their everyday tasks and responsibilities. The result is that research takes months or years instead of weeks, and the key takeaways are inconclusive. This is where a professional firm can help to fill in some of the gaps.
Please contact me at kellylusson@amarkconsulting.com with any questions or comments.