The definitions and interpretation of marketing are all over the map, and many people have many different ideas for what Industrial marketing really is. Her are some examples:
When asked why he didn’t teach industrial marketing as part of an MBA program, a professor told me that all of the principles of consumer marketing could be used for industrial products.
An owner of a small manufacturer answered with a question: “Isn’t marketing just another word for sales?”
A president of a large machine shop said, “We really don’t have to do marketing, because the customers come to us with requests for quotes. We just need to be on bid lists.”
An owner of a small product manufacturing company said, “It is a matter of inventing innovative new products. When you have these products, people tend to come to you.”
An executive vice president of a mid-sized contract manufacturing company said, “None of us were ever trained in this marketing and competitor intelligence stuff. It is not what has made us successful in the past, so why do we have to do it now?”
A president of a mid-size, multi-division manufacturing company told me, “I think we have a good marketing program. We analyze our internal financial and production records, and we listen to our sales staff about trends in the market and what the competition is doing. Isn’t that marketing?”
Another person commented, “We have a marketing department that does all the marketing. They make brochures and videos, attend trade shows, and generate leads from ads that they send our salesmen. What else is there to do?”
I call Industrial Marketing the M-Word, because so few small and midsize manufacturers (SMMs) actually use it for a wide variety of reasons. Most SMMS and small businesses are oriented to sales and getting orders. They view marketing as an academic exercise that probably will not lead to sales. They like tangible things such orders and banking checks. They are impatient with intangible ideas like customers, markets, advertising, etc.
Industrial Marketing, in my opinion, is a philosophy or plan of the manufacturer’s owners on how the company will grow in the future. Specifically, how will you find new markets and new customers to grow? Once the company is committed to growth, they will have to make strategy decisions to attain the growth objectives. But the big problem with the M-Word is that making good strategy decisions requires information.
So why is this important?
American Manufacturing faces some serious long term problems caused by globalization. The economy and customers continue to change, as well as their requirements for new products and services. Many SMMs depend on a few large customers that regularly send them RFQS. The problem is that many of their original customers have gone away, sourced products and services from Asia, or are driving price reductions so hard it is difficult to make a profit. To grow, SMMs need to go out into the market and look for new customers and new market niches, which will lead to new products and new services. But most are simply not organized to go out and find these new opportunities.
Industrial Marketing is a holistic plan that requires information on customers, competitors, and markets, as well as cost, margin, and pricing information. This information gathering (the basis of industrial marketing) is where the problems begin. SMMS have a hard time seeing the need for the information gathering, and they can’t see that this will lead to sales. They would rather use the time and money to go after more sales.
I think every manufacturer understands that to grow they will have to make decisions on strategies like prices, current products, new products, sales organization, sales channels, and promotion. But, before they invest the money in strategy decisions, they need some information. For instance:
- Prices -- You should evaluate your prices to see how they compare to competitors. You need good “apples to apples” price information for each competitor and model or you are simply shooting in the dark.
- Current Products -- You should also evaluate the current products to see if you have a competitive advantage in the marketplace. This is usually done by comparing individual models in a technical comparison in a competitor matrix.
- New Products -- If the current products are not competitive you will be faced with modifying or developing totally new solutions. New product development always cost a lot of money so it is best to find out what the competitors are offering so you don’t introduce a “me Too” product. You will need enough information to convince the owners, investors, or bank that there will be sales for the new product when it is introduced
- Promotion -- You need to make a decision on how much advertising and promotion money you should spend to find new customers, introduce new products or re-introduce modified products to buyers. Before you make this strategy decision or investment it is very helpful to have gathered the information for questions 1, 2, and3.
- Sales Organization -- You will also have to decide if your sales organization is adequate to go out and call on these new customers in the new markets. If they are not then you will be faced with hiring somebody who can, which is a sales strategy and a budget decision.
- Sales Channels -- Perhaps the new products you are offering to your new customers may require a different type of distribution such as dealers, distributors or independent reps; it costs money to go out and recruit, train, motivate these channels.
Well you might be saying “this is a lot of stuff that will require a lot of time and money. Do I really have to gather the information to make these strategy decisions? My answer is no, you don’t have to gather the information and you can simply “wing it”. But from my experience your chances at growing are very remote.
The rationale is that all of these strategy decisions cost money. It is the owners or investors money, so why not gather the information necessary to make decisions before spending their money?
Here are some examples of why gathering information and implementing a real industrial marketing program are in your interests if you want to grow:
Using Inquiries to Find New Customers and Markets
Using inquiry generation techniques to find new markets and the right customers is the most inexpensive and practical method the author has used to increase sales. It is ideal for small manufacturers who do not have field sales organizations or are being forced to find new markets and customers for the first time.
After acquiring a product line of pallet handling machines, I had to find the customers and markets to grow and become profitable. I used a lead generation and sales prospecting program to gather enough information that made it possible for one inside sales person to get a new product line off the ground, and reach the sales forecast in the very first year of operation. The total cost of the lead generation program was $75,000 and produced $1.6 million in sales. This was 32 orders (units) or $2,344 promotion costs per order.
Mentor Graphics, Computer Aided Engineering Systems, Beaverton Oregon
In 1981, Gerry Langeler and his partners founded Mentor Graphics to develop a new software product for the emerging computer aided engineering (CAE) market. The partners spent weeks developing the specifications for the product and had progressed to the point where they were convinced that they had produced an invention that could revolutionize the CAE market.
Unlike the founders of many high technology start ups, Langeler and his partners knew they had to get a reaction from the marketplace before they asked people to invest the large sums of money that would be needed to launch the product. They chose 20 companies in the U.S. that they considered potential customers in this emerging market niche, and visited each of them to do face-to-face interviews.
These target companies not only told Langeler and his partners about their needs and problems, they helped them to change the specifications so they would meet their future needs. After a whirlwind customer trip lasting four weeks, the partners returned with a completely revised product and several potential customers. There was still a lot of work to be done, but the founders had defined customer needs well enough to design a leading edge product that achieved phenomenal success. Mentor Graphics has grown from sales of $1 million in the first year, to $914 million in 2011.
Defining the Potential of Acquisitions
I still do projects every year on industrial acquisitions for product lines or manufacturing companies. There are two big questions that need to be answered on every acquisition:
- Does this company (or product) have a competitive advantage over competitor’s products in the same market?
- How big is the market they serve and what is the potential for growth?
These are critical questions that require research and market information. If you don’t answer them accurately, you will find out the answer after the acquisition and at the point of sale. In fact I think the answers to these two questions are the difference between a success and failure of an acquisition
Marketing from the Perspective of the Venture Capitalist
If you are small manufacturer who is looking for capital, you should know there is hundreds of business plans submitted every year. Only about 1 or 2 percent of the business plans and product ideas, however, get serious consideration for investment.
Wayne Embree of Cascadia Pacific Management looks at many new product and technology ideas and reviews a lot of business plans. When asked what these inventors and entrepreneurs can do to increase their chances of commercializing their product idea, Wayne says, “That they should spend a lot of time developing a case as to how their product idea is going to have compelling competitive advantage.”
This translates into gathering lots of information on competitors, channels of distribution, and customers if you are going to convince anybody to invest money in your product idea. Wayne’s summary expression is “An ounce of marketing beats a pound of technology”.
A lot of small and midsize manufacturers are struggling in our post-recession economy. They have lost business from some of their old customers and need to diversify into other markets. They need to develop the strategies to grow, and these strategies always require some basic information before you invest in them. The good news is that there really are a lot of market opportunities out there if you have a way to find them and the information to develop a growth plan that will increase sales. The answer is the M-Word.
Mike Collins is the author of Saving American Manufacturing. his website is www.mpcmgt.com