Marketing Competence :: Contributions

Sales with little or no outside sales forces are up. Just ask Grainger. Their volume now exceeds $3 billion. Their overall gross margins for this decade have risen, not shrunk. The reasons are clear. Convenience and Speed for the customer just to name a couple. For Grainger, the benefits are clear also. They enjoy transaction costs that are lower, sales and inventory are reduced also. They haven't the expense of feet on the street. They don't need a huge number of same products in every warehouse to serve the customer. If the customer orders ten drills, it is usually though a phone, fax, or electronic means. Additionally, Grainger can fill that order from inventory from a Washington warehouse or one in Texas.

Are we are moving from the Outside Sales Person Paradigm to the Inside Sales / Database Marketing Paradigm? Can't we refocus the outside sales person to more market development, account penetration and customer retention? Is the power of Database marketing to our benefit?

Arthur Anderson concluded in its landmark study "Facing the Forces of Change” that high ROTA firms have redirected their outside sales persons to a different role. Such as developing new markets, exploring other channels, penetrate accounts when needed, finding new customers and more. Companies have these sales professionals calling on the existing, established customer less.

To this point, last year was the first time Inside Sales People outnumbered outside sales People - 51% to 49% of total sales force personnel. Additionally, Distributors which supply Commercial Contractors are seeing the need for constant sales calls on these types of accounts less needed. (These contractors know what they want 99% of the time, it is just a matter of price, availability and submittals.)

That means less face to face contact and more at-a-distance transactions. The trend seems to be that those wholesalers that can project and control the sales and marketing process from afar, the more successful they can be. How to do this is the #1 question for Distributors in the whole database marketing process.

For some time, we have had a Computer Environment where main frame systems dissect business to make our inventories turnover faster, our billing more accurate and our order pulling near perfect. However, is our understanding of markets and customers necessarily better? With all this computing power, are we better in our systems of selling and marketing. Have we improved in our uncovering the natural behavior of the customer. The "Facing the Forces of Change” says that this is one of the top 6 issues for Distributors as we face the next millennium.

The state of understanding of Database Marketing is in its infancy. To illustrate this point, there is no definitive book on the subject for Distributors to rely. The current work has been focused mostly on the consumer side. It has left the Distributor to wonder about its use and the benefit that it holds for the Distribution Industry.

With the success of W.W. Grainger, can't we surmise from their legendary growth that Database Marketing is a viable alternative. Could their success be your success?

How can database marketing help us improve this area of customer understanding? Can it help us sell more with less cost? Is it something that is a fad or a trend? If Brand Management is necessary to the Manufacturer, is Customer Management an important new skill in Wholesale?

We believe that database marketing allows for a distributor to use customer behavior and buying habits to his or her advantage. It gives companies in a business to business environment, an edge to sell more with less cost. It can uncover selling opportunities with existing customers, improve the effectiveness of sales lead follow-up, actually discover new customers, and reactivate dormant customers.

To start your database marketing effort. Here is a sample of information you'll need to gather:

• A datafile of your company's customer invoice transactions for the last month.
  
• A list of companies in your market that are in your target industries.
  
• A monthly list service of newly formed companies.
  
• A monthly list service of newly licensed or certified professionals in your industry.
  
• Advertising sales leads of the last month or year.
  
• Manufacturer Partner's information such as warranty cards
  
• Business Activity / Contract awards / Low Bid Reports
  

First Steps:

Take your account list and code it with those customer attributes you deem important factors. Code the information with such numbers as:

Analyze your information

With the information coded, your main frame software should be able to find correlations about your customers and their purchase habits. If your software is lacking in database marketing power then try this alternative. Have your MIS Director off load the customer invoice file with the product, pricing, and other appropriate field in ASCII Comma Delimited Text. This is a user friendly computer language that can be imported into almost all software packages. At first, take small amount of invoices, say a week's worth. Import this into an analysis software, such as Business Objects Data Miner (which we use). There are others such as SAS, Cognos and MiniTab. This software will look for the tendencies of customer behavior.

The analysis software will tell you what are the most frequent or highest correlation of activity. Why is this necessary? When you first open their account, you want to know their needs i.e. Truck boxes, Tools etc. You sales communications should reflect what they will most likely buy. This is where you efficiently put your effort, time and money of promotion and selling. It is a better use of your dollars than just blanketing the market. A mass marketing approach would double or triple the cost with little incremental increase in sales. This specific information allows you to target certain accounts with a focused contact. You have the logic of research of customer purchasing activity. With some products, because they are low dollars (but high margins) sales people forget to ask for that business.

So, you have solid reasons to telemarket, mail or even e-mail offers / catalogs on some products. As an example, In the HVAC Business extended warranties to home owners who have just purchased is but one example of utilizing a logical and well reasoned methodology to database selling.

The 11 steps to setting up and successfully executing your Database Marketing / Selling Program:

1) Select a Champion:

To grow any new venture, you need a champion. The quality of your Database Manager will decide the amount of success that you have. This manager needs to be a champion. He or she has to eat and breathe this business, be vigilante, and care deeply. The successful candidate must be part sales person / part manager. Primarily, this is a sales job, will make sales and should possess a high economic focus, that is they have a strong need to sell and make money. Additionally, they should possess a manager's handle on administrating the database in a way that is efficient and effective. A person of this caliber will be hard to find.

2) Define what Database Marketing is:.

This is essential to a good launch. Coming to grips with what role and what function Database Marketing will play in your company is essential. In this process, uncovering the perceptions of your company manager and staff will be primary. From that point, go through an education process. Let them know the different advantages of this type of marketing. The Database marketing manager needs to be in this process as both an educator and as a participant. The speed of the acceptance to this new way of thinking will be paramount.

The questions have to be asked and answered: Is this a Sales Center unto itself? Will it telemarket, mail, e-mail and fax outbound to solicit orders? Will it support the sales person in the field or will it take product orders, ship and bill it? How will your commission structure be set up.

Be clear on what the role is. If this step is not performed then, the unintended consequence is that the sales people, managers may work against your database marketing unintentionally.

3) Plan, flow chart and understand the Database Marketing Process.

As in all endeavors, planning ensures less problems and more success. Take the time to think about the process deeply. Have multiple meetings. Flowchart the entire process. From input of information, to analysis, testing, outbound solicitation, order fulfillment and billing. Take your time and cover it all. The buy-in from the internal customer, your manufacturer partner and the external customer will achieved quicker and easier.

From this you will able to educate easier each new hire, vendor or account. From that, your training costs will be lower and more effective, only because you took the time up front to go through the planning process.

4) Choose your software.

You will have two tasks to perform in your database marketing work.

1) Datamining: This function is focused on finding the trends and interrelations of your sales and customer behavior. The program you use should be one that is well accepted. This makes it easier for you find answers to your questions. Because of the legendary delays, utilizing a customer service line for a software developer is a last alternative. If you have ever called one up, you know what I mean.

Some very good analysis software to consider is SPSS or SAS. These programs have a wide acceptance and are windows based. There are others however, these are the premier provider.

2) Contact Management. You may have this type of software. It makes your selling and marketing easier if you do already have it. Most distribution programs have a full blown customer contact feature. This allows to quickly contact, keep track of and send out information to the prospect / existing customer.

Some examples of personal computer based contact management software is ACT! Goldmine, and Sharkware.

5) Secure information sources - internally and externally.

Internally - have your MIS Department give to you a random sampling of invoices in a datafile. For ease of use, they can export this information into ASCII Comma Delimited. This language is importable into almost all analysis software. You will need to run an analysis of the information. This will include many different cross tabs, frequencies etc. through the data.

Externally - Call the major providers of information for your industry. You will also need to secure agreements to secure information from your Manufacturer partners. These sources will give you who is just forming there own business, who received the latest contract, who bought what product, which companies made inquires about which line of goods, who has a warranty, which individuals are sitting for what certification exam etc.

All this information is invaluable when we talk about one of the key concepts of Database Marketing. Recency, Frequency and Monetary. More about that in a later article.

6) Analyze the your database / datafiles for opportunities:

The analysis work is part science and part art. With a powerful enough software package, you can spend days in the areas of mining. Your Database Manager has know to the sales side well enough to know where to look. Once you uncover the trends and the interrelationships, then Database Marketing will not only become a valuable part of your sales effort but also an effective research, planning and forecasting tool for your company.

Examples:

7) Start out with modest, well controlled experiments.

Database marketing is the understanding of how to drive business to your doors and through your phone, website, fax, through indirect selling. Take that understanding seriously and take time for your people to learn it.

In one company, the change to more database marketing was made quickly and on a large scale. Two things happened:

A softer approach of executing small experiments works much better for the long term. At the same time, educate your sales people to the process of data base marketing. Let them voice their concerns. Show them the why and wherefore. The benefits and payoffs.

Remember, that your customerbase is unique to your company. The behaviors of your industry and your customer are very different. There is no book that can tell you what will work and what won't. It will only give you general guidelines. You have to learn it by these controlled tests.

8) Measure it.

Measurement is one of the less glamorous types of business activities but it is one that is most essential. Managers and Salespeople hate to do it. Some managers and sales people measure the result by firing their arrow, watching where it hits then painting a circle around it.

People resist measurement because it sometimes shows them at their failures. Bosses see subordinates when they win but also in their worst moments.

To show you the power of measurement, I was involved in a situation where a showroom location that had 79% of its marketing budget dedicated to the consumer however, the professional (Builder, Tradesperson, Realtor) influenced over 90% of the business. With this very insightful information, we were able to redirect and boost the sales of the showroom without increasing its expenses. This kind of slow and careful analysis pays back in dollars.

9) Use the System Judiciously.

The precision of your database marketing system relies on the feedback and cooperation from the field. Your system's accuracy and perceived fairness will motivate that cooperation.If this information is perceived as a gun to their head rather than a help to efforts then it becomes a system to "beat”.

So use your Database Marketing judiciously. This information can help you cut through preconceived notions and fuzzy thinking.

We recall the experience of two inside sales reps that I used to work with. Both were of the mind that Marketing was a cushy job with really no purpose in life. When they became outside sale persons on a commission basis. I suddenly became their best friend. One salesman, Jeff, opened and sold three customers the first week he was on the job. The leads were from our database marketing system. The other outside sales rep was Scott. His first month on the road, we gave him a very strong inquiry that resulted in over $110,000 of sales in the first year.

Incidentally, these accounts were new to the company also. New business that we didn't have before. These kinds of stories need to be communicated to the field to inspire confidence and excitement about Database Marketing.

10) Plan for continuing maintenance -

Database Marketing falls down when the newness wears and the more tedious tasks of upkeep and updating. When we recommend finding a champion in #1, this is very necessary to keep the program alive, well and growing.

A passionate person is the only antidote to the long-term and sometimes tedious work involved.

11) See the next step while still in this step.

Once the process is rolling, and it is understood by you and you company, look to take what you have learned and export it other parts of your company.

The analysis portion of sales lead follow-up, customer behavior, added on selling can all be taught to other parts of your company.

Here are some general tips to follow in your Database Marketing efforts:

1) Solicit the most immediate need, such as a newly formed customers. They will need those items to set up their contracting or manufacturing shops. This make perfect sense. He or she has tools and tool boxes to buy. What about safety equipment and fire extinguishers? Take the lead with a focused telemarketing, mail or sales piece to promote those appropriate products along with an open account application.

2) If someone is buying, hit them with even more opportunities to buy. One simple example is if a customer buys a drill, you send them drill bit specials, a carrying case offer, a warranty service program, etc. If they have a product of yours, add to the sale.

Another strategy is that if they are in a state of "High Trust” i.e. they are buying more and more each month. Mail to them a catalog, flyer or telemarket about more of your products. That is in contrast to people that have steady or no purchases with you. They should be #2 on your priority list.
What if they are buying thermostats, send them a complete catalog of thermostats that you stock and can special order. This can be a way to overcome the lack of sales success with some accounts.

3) Tie your offer into special and personal occasions. Company anniversaries, birthdays and the like. Give a personal touch such as gift certificate to your customers who are celebrating. This kind of information can be gathered by your sales people or public records and put into your database.
4) The Database Marketing Department should take charge of lead follow up. A recent study by Cahners discovered that only 20.7% of sales leads were followed up by sales people. Couple that with a national study on sales leads concluded that 45% of those people who inquired about a product bought the product or like product within one year. These two numbers represent a national epidemic or a land of opportunity.

5) Former customers are golden - Peter Drucker says that you have a 1 in 16 chance of selling a prospect but a 1 in 4 chance of selling a former customer. Your first experiments should involve former clients. The reasons may be major or minor. These inactive accounts can give you the quickest and largest payoff to your database marketing efforts. If you have a failure here, is it really a failure with someone who doesn't buy from you any way.

6) Customers either accept or reject your message after 2 years or 27 impressions. So change the message, change the messager or drop the customer off the list altogether if he or she is not buying. We recommend either of the first two.

7) Don't database market to companies who have yearly purchase order agreements. Some say this is common sense, however, sometimes people forget their senses. As you know, customers are restricted by these contracts. The impulse buys they make are usually because of relationship or convenience rather than a offer. Your effort and money is better spent elsewhere.

8) Have Everyone in your company input into the Marketing Database. As I have experienced, the accountant I hired yesterday is the next door neighbor of an important customer executive. At another time, my assistant was hunting buddies with the Vice President of another important account.

To take advantage of this common occurrence, have limited access to the Marketing Database so people can place notes, suggestions and other information that will help give you important information and deepen your relationships with your Customer and Manufacturer partners. This will give you an edge. People still do business with people.

Here is some examples of the power of Database Marketing

1) You can find out which type of Customer:
a) Is the most profitable - by g.m. $ / g.m. %
b) Has the highest returns
c) Has the highest drop ship ratio
d) Has the highest sales growth for the last year / decade
e) Pays cash / cash equivalent
From this information, you can go out and look for more of your best customers. This kind of research will justify using a high promotional expense to attract this customer.

2) Sales forecasting - Gives the distributor a more scientific way in which they can run their business. Database marketing will never replace gut feel but , it allows the wholesaler to be more decisive and faster to implement his decisions. example:
You are averaging 600 new accounts a year. On average 150 accounts diminish or stop their business (C.O.D., Retire, Bankrupt) with you each year. You want to grow your business. From the database, you know that it takes 2 prospects to open 1 customer. You also know that each customer adds an average of $5,500 the first year in sales. You double your prospecting efforts. If all other factors stay the same. Buy using past experience, we will should see an 22% increase in sales.

3) Geomapping of accounts and designing better sales territories. You can take advantage of trends to your advantage. Example: 30% More industrial production is expected next year. 80% of Industrial Accounts are north of the city. Plan to add a junior sales person to industrial accounts south of the city. This will keep traveling time to a minimum.

4) Contingency Planning - a raise in copper pricing means we should notify those that buy copper tube. Your system will be able to give to you a list quickly for timely notification.

5) Inquiry Tracking - You have received six inquiries from the same company about a certain product within a three month period. You know from past experience that they are twice as likely to buy when the inquiry is this heavy. Tell the Salesperson to promptly follow up. Contact the names of those inquirers who are purchasing managers. Caution, You will have less success contacting those people who are engineers.

6) Opportunity Trigger - Using timely information on the success of your accounts can help you in taking advantage of current opportunities. Customer has been named low bidder on 3 large projects in the last 6 months. No increase in business with us. Why?

7) Geography Probability: Your analysis shows that the physically closer a customer's business is to our location, he or she will likely buy more counter business. You have looked at accounts that are with ten miles of your location and found that they give you twice the counter business than customers twenty or more miles away. If you are seeking more counter business, then a blitz to find more potential companies in your area is a strategic move. Your strategy is find all unknown accounts within a ten mile radius and communicate your counter service to them.

8) Interactivity Tracking: If your marketing material encourages responses each time a piece is sent out. Your database tracks these responses. Through analysis, you uncover 22 companies that have given 5 or more inquiries to your firm. Strategy: contact the purchasing managers to see what is causing this interest. Make these people the top prospects for the week for your telemarketing group.

9) Promotion Power:When launching the latest product or service promotion (upsell opportunity), your marketing database will give you the previous purchasers of that product or service. This group of customers is a where you want to start your promotional efforts: They have bought the product in the past and will most likely take advantage of this offer.

Take a long look at Database Marketing for your company. It is a way to augment your present inside and outside sales efforts. Its power is in its persistence, interactivity, proactivity, financial responsibility and measurability. Just as a good sales person acts, so does Database Marketing. It can be a great compliment to outside sales people or as a stand alone profit center.

This is a short course of a very complicated subject that will be with us for long time. We feel that this is the next level of Marketing. Review this alternative, see if it could augment and enhance your business.