What are your customers really buying?
Regardless of what economic forecasters say, the evidence is that world trade is going to go through some difficult times in the immediate future. Interest rates internationally will go up, and demand will fall, causing costs to increase, and profits squeezed. Commercial managers, responsible for producing the business income will have to show how they are investing money and resources in order to produce it efficiently.
The task of the commercial manager is to produce the maximum sustainable profitable revenue, while minimizing the level of assets, costs and investment. Business income is produced by anticipating and satisfying customer’s requirement. The ability to anticipate and satisfy is dependent on the knowledge of customers in particular, and the market in general, as well as the knowledge of competitors, their products and methods. To obtain that information, one has to ask questions. It is important to be certain of what facts are thought to be known, to be able to verify them, and to be clear about what is not known or which is assumed to be known but is not or cannot be verified.
Marketing is defined as the management of “all those activities which collectively anticipate and satisfy customer demand profitably,” Is your marketing effort really cost effective? If your answer is yes, then how do you know? Does your organization actually measure the return it gets for all the money it invests in getting and retaining business? Is your answer based on verified fact, or is it based on an assumption because of a lack of information?
Assumptions are always based on something, whether it is old information, a trend, a known information source, or perhaps pure guesswork. Whatever it is, it is important to understand the basis of every assumption in order to assess its credibility and reliability. Many business problems have their origins in assumptions that prove to be wrong. Whether it is the banking crisis, inept government actions, or failed business ventures, analysis often shows that the decisions made, while apparently logical and justifiable at the time, have subsequently proved to be wrong having been made on false assumptions. In management , assumptions often stem from misplaced trust, lack of understanding, and idleness, where an attitude of, “it will be alright” encourages complacency.
For those responsible for producing sustainable profitable income for any business, assumption is a dangerous luxury. Business plans are always based on some assumptions because it is impossible to be certain about all future circumstances. But it is important to define those assumptions on which plans are based, and where possible test their validity and probability. But as anyone involved in producing sustainable profitable income will tell you, making or maintaining the wrong assumptions will result in poor decision making, which can have expensive consequences. When considering those assumptions required for planning, clarity is necessary and verification desirable, but it is often the general assumptions of management that can be the cause of failure.
In business to business selling, products and services are largely sold to meet a particular specification; - manufacturers buy supplies to a specification, while offices buy services to fill a specific need. In consumer markets it is assumed that the customer is buying the product for its benefit, but what the customer is actually buying is not necessarily the product or service that is being sold. For many consumer customers, the self-image produced by association with the brand is the prime selling motivation for purchase rather than the product itself, hence the growth in fake products bearing famous brand names.
Commercial managers need to be fully aware of those assumptions on which their marketing is based, especially on their validity in a changing market and economic environment.
When considering customer’s purchasing requirements, there are some important questions that need to be answered:
Is the product still right for the customer’s current circumstances? How do you know?
Is the customer’s problem still the same or has it changed? How do you know?
Is the customer really buying the product or actually the service that provides it? How do you know?
Is the customer’s problem understood? How do you know?
How does the competition compare in terms of the problem solution and their service provided? When was it last evaluated?
Is the problem still a customer priority? How do you know?
It should be remembered that assumptions that held sway in the past may not be valid for the present or future situation.
Understanding what customers are buying and particularly why they are buying it, is vitally important to the commercial manager who is responsible for producing sustainable income for the long term.