Trappings vs. Substance

In all of my travels in the U.S. in the last 40 years I have met hundreds of different types of manufacturers and have concluded that what defines them is that they are operations oriented. In the last 30 years their focus on operations has allowed American manufacturing to do very well in terms of cost reduction, productivity, and internal efficiencies.

In the eighties when the Japanese began penetrating our markets with superior quality products American responded with Deming Statistics, TQM, and ISO -9000 and eventually America could compete with anybody in terms of quality. About the same time computer software evolved into MRP, MRPII, and eventually ERP to control workflow and inventories. Then the Toyota Production System was revealed and programs like JIT, Six Sigma, and Lean Manufacturing became very popular. All of these initiatives have kept us in the global game of manufacturing.

The value of what manufacturing produces grew $585 billion in 1977 to $2.2 trillion in 2005 – an increase of 377%. In this same period capital investment increased from 51.9 billion to $128.3 billion. The U.S. Labor Department shows that output per hour of American Manufacturing from 1979 to 2010 was 4.1 in 31 years. This is very high compared to most other countries except for Finland, Singapore and Taiwan.  So what is the problem?

The problem is that American Manufacturing is not growing in terms of percentage of GDP, number of employees, number of plants, or in many cases sales revenue. They are very good at the internal and tangible issues inside the manufacturing plant but are not very good at external issues relating to finding new markets and customers. For a variety of reasons they are not very good at industrial marketing.

In 1970 I was doing graduate work in industrial market research and came across an article in the Harvard Business Review by Charles Ames, called “Trappings vs. Substance in Industrial Marketing”. He said in 1970, “As I see it; marketing has not measured up to expectations in many industrial companies because management had concentrated on what I call the trappings of marketing rather then the substance.” Ames makes the case in the article that most industrial companies are operations oriented rather then market oriented, which is the difference between successful and growing companies and all other industrial companies.[1]

I don’t think much has changed since Charles Ames wrote this significant article. Most manufacturers have marketing departments or some kind of marketing function. Sometimes marketing is just another name for sales or it is a person who does the advertising, promotion, brochures, website, and lead generation –the trappings not substance of industrial marketing. 

The substance, as Ames described, is a business philosophy driven by the markets and customers. I describe the substance as a way of growing by continuously finding new customers and market opportunities and to invent the new products and services that will give the company an ongoing competitive advantage. In my opinion this is not about simply changing the mindset of the owners and managers, to become truly market driven requires a plan that details the target markets and customers, the financial growth in a proforma forecast, and the pricing, new product, sales, channel, and advertising strategies that will attain the goal. This plan is the real substance of industrial marketing and perhaps the reason that most manufacturers would rather just do the trappings. In short, the substance, is defining where the company will go in the marketplace and how it will achieve the growth it wants.

For those of you who are now wondering whether your marketing efforts are substantive rather then trappings, I have provided a simple checklist of 6 essential questions.

The Six Essential Questions:

Essential Question 1- Can you identify the best customers to sell –now and in the future -Profiling your customers is the first step in the 6 Essentials because really knowing your customers is absolutely vital to everything else you do.  Selecting new customers and markets will drive decisions and changes to products, services, organization, and manufacturing. The simplest way to achieve this is to examine the best of your current and past customers, to profile the best customers, the right customer, a profitable customer or one with future sales potential - to grow your business profitability.

Tool - Profiling Customers

Essential Question 2 - Do you know which market niches (customer groups) to focus on now and in the future? – I don’t mean by industry. I mean by specific market niche which defines the customer’s business in terms of an SIC Code. The reason is simple. If you can figure out the SIC Code of a good customer you can look up all of the other potential customers in the same niche and target them. If you leave this task up to the sales reps they will be forced to use “shotgun selling” where any customer is a good customer.

Tool – Niche Marketing

Essential Question 3 - Do you know what kinds of products and services they want? In his book Confronting Reality, Larry Bossidy offers a good answer to the question of monitoring customers. He says, “Of all of the external information you can gather, knowledge of the customer is the most specific and valuable in assessing your business model and strategies”.  I think everyone would generally agree to this statement but Larry, unfortunately, doesn’t say how you are supposed to do it – just that it is vitally important.

Developing a systematic way of monitoring customers is where you will find many ideas for new products and services and upcoming projects. Monitoring customers is almost always the key to success in increasing sales and finding market opportunities regardless of whether it is something you're naturally good at, or it feels like pulling teeth. It's not always easy because customers are external to the situation and not easy to monitor. It must be done if you are to compete in a changing economy

Tool - Nine Simple Methods 

Essential Question 4 - Can you compare your products to the competitor’s products in terms of price, delivery, key features, - model by model? Competitive intelligence information is important because it shows you whether you have a competitive advantage. Many job shops and product manufacturers find themselves trapped in competitive situations where they have little competitive advantage and dwindling profits.  In this situation the sales rep is trapped with very little to sell. It is up to the manufacturer to find out how the company can differentiate its products and services from the competition well enough to gain a competitive advantage and grow the business 

To do this you need to find out:

• How many competitors there are for each product line or service
• How your products or services compare to their products in terms of customer buying perceptions
• How their prices compare to competitor’s  prices from customer buying perceptions

If you can’t answer these basic questions, then you will find out at the point of sale whether you have competitive advantage or not. It goes without saying that it is very expensive to find out you don’t have a salable product or service at the point of sale.

Tool- The Competitor Matrix 

Essential Question 5 - Do you know the specific reasons you lost orders to competitors for every known lost order in the last year?  One of the best indicators of whether a marketing or sales program is working is the ratio of orders to lost orders.  Knowing why customers buy or don’t buy is vital to any growth plan. The reasoning is simple - it is difficult to know what to do to prevent future lost orders or lost customers if you don’t know why you are losing current customers and orders.

Keeping track of lost order information is critical to perpetuate long term growth and is a fundamental plank in the foundation of continuous improvement, customer satisfaction, and quality programs.  The bottom line is you can’t really develop a plan to increase sales growth or even survive in the new economy without knowing why you lose orders and customers.

Tool – Lost Order Analysis 

Essential Question 6.  - Do you know if you are making adequate margins on each product line, model, of job? To have a chance of competing in the new economy, manufacturers must know if they are making adequate margins on each product line, model, job, or service. Many small manufacturers have good sales records but rarely keep summaries of profitability.  Maintaining detailed records on profit by customer account, product line, product model, and work order is necessary to make customer selection decisions, to change selling and pricing strategies, and to identify “product dogs” that should be dropped. But, most importantly, it is dangerous to go after large accounts or to bid on large projects when you do not have good cost information.

Tool – Establishing an accurate contribution margin

If you can’t answer some or all of these questions, you are probably doing the trappings rather then the substance” of industrial marketing. The fact is that the American Manufacturers are still operations oriented not market oriented. They have done a great job of lowering costs, improving quality, and using continuous improvement techniques to keep manufacturing in the game. But manufacturing is not growing in terms of jobs, locations, % of GDP or sales.

To grow, in my opinion, requires continuously finding new customers and market opportunities and to develop the new products and services they need. In short manufacturing needs to transition from operations oriented companies to market oriented companies just as Charles Ames suggested 43 years ago.

Michael Collins is the author of the Growth Planning Handbook for SMMS. His website is mpcmgt.com