Performance Marketing – does it provide the answer for management?

Performance Marketing is a method of interactive advertising which pays on a “performance” basis, but only on a completed action. That completed action can be a sale (Cost Per Sale) or a lead (Cost Per Lead), but can also be other revenue models including Cost Per Download. While Performance Marketing is similar to Affiliate Marketing, the latter is generally a cost-per-sale, revenue sharing model where affiliates receive a portion of the sale of any product.
The meanings of words develop and change over time, especially in business and commerce and it is obvious from these two definitions that the word “marketing” has supplanted the word “advertising” in general use.

In 1976, the Chartered Institute of Marketing (CIM) defined the term “Marketing” as being “the management process that identifies anticipates and satisfies customer requirements profitably”. However, for most people, marketing does not refer to a management process, as in the CIM’s definition, but has various meanings, none of which are clearly defined, such as social marketing, e-marketing, and digital marketing. While in America, marketing usually refers to activities involved in “lead generation” for the separate activity of selling.

Measuring performance in marketing is a subject that has returned periodically over the past 20 years or so. But as over time, the meaning of “marketing” has apparently changed, so terms like Performance Marketing, Marketing performance and other similar ones have become more difficult to differentiate.

Measuring performance in marketing depends on how marketing is defined. If Marketing now is just another word for advertising and promotion, then all performance measurements will relate to the effectiveness of advertising and promotion. However, measurements of advertising and promotions are of limited use to the Commercial manager with the wider responsibility for maximising and producing profitable income through the efficient use of investment and resources.

The level of profitable income produced is dependent on the customer’s existing and potential requirements, and the ability of an organisation to service those requirements in an efficient and profitable manner. The customer’s existing and potential requirements are affected by the external factors of the economic and technical environment, over which the commercial manager has no control. However, it is essential that the commercial manager should be continually aware of economic trends and technical developments, especially in volatile markets, and to use suitable measurements to monitor them.

Most performance measures are about internal factors over which a commercial manager does have a measure of direct and indirect control. Such measures relate to the use of assets and resources, from which trends may be extrapolated. Even when such detail can be produced in near “real time”, the results relate largely to what has happened already, and can only act as indicators as to where judgement and decisions may need to be applied.
In the general confusion of “marketing definitions”, commercial managers need to be clear on the specific definitions they use and not make assumptions that others have a similar understanding. Terms that have specific definitions are not interchangeable without causing confusion, especially when measuring performance. “Metrics” are the standards for measurement, providing target values that a company must achieve to reach a certain level of success. While “measurements” are the raw outcome of a qualification process, such as a company’s numbers, ratios and percentages, benchmarks are the very best measurement to which to aspire and the standard by which all others are compared. Thus benchmarks are used to establish the value of metrics for measuring satisfactory performance. The “Return on marketing investment” (ROMI), and the “return on investment” (ROI) are examples of important terms for performance measurement which, if used indiscriminately without clear definition, can be a cause of confusion. Frequently these terms, ROMI and ROI are used in relation to communications programs, seeking to relate the results of advertising and promotion to the investment involved. However, for the commercial manager, ROMI and ROI relate to the profitable income produced by the total investment in all the activities involved in identifying, anticipating and satisfying customer requirements.
Most commercially available “performance marketing” or “marketing performance” programs appear to be designed specifically to measure the effectiveness of web-site related business. The increase in the numbers of these programs indicates the growing importance of web-based communications in producing and maintaining customer business. These programs may have many different elements of measurement, but generally include net sales billed, the number of product or design registrations, and brand surveys to measure brand awareness. By monitoring and analyzing marketing performance data, managers can increase their competitive intelligence, assessing their market strengths and weaknesses, and make calculated budgetary decisions across their resources. But while specialist computer programs may provide performance measurements in detail, they cannot make the necessary management judgements and decisions that produce profitable income. As such these programs are an aid to management, but not in themselves the secret to business success.

As Peter Drucker observed, “If you can’t measure it you can’t manage it”. Performance measurements are an essential tool for the effective management of resources and investment, but they only relate to past and current performance. Only informed management decisions can influence future performance. The successful commercial manager needs to understand performance measurements, but then crucially, be able to apply judgement and take decisions to maximize profitable income for the future.

© N.C.Watkis, Contract Marketing Service 30 Jul. 14

August 4, 2014   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance management, marketing management  Comments Closed

Collaboration can bring cost effective benefits

Investment in new resources or arranging a possible take-over can prove expensive and potentially risky, but the opportunity to collaborate by sharing resources with suitable partners may have considerable benefits for all parties.

Commercial mangers have the responsibility of maximising profitable income while minimising costs and the use of assets. However, new opportunities to maximize profitable income may require additional resources in people, skills, knowledge and finance which the organisation may not currently have. Collaboration with a suitable partner may provide a cost effective solution to maximizing profitable income while minimizing costs and investments.

Collaboration can take many forms, allowing all parties to maintain their independence while cooperating to mutual advantage. One option might be to agree to co-operate with another business in a limited and specific way, perhaps by pooling the resources of their respective distribution networks, while another option might be to set up a joint owned company, or a limited liability partnership. Such collaboration may provide access to new markets and distribution networks, increased capacity, or give access to specialised staff, technology and finance as well as the sharing of costs and risks.

There are many examples of successful collaboration. Aircraft manufacturers have cooperated to dilute the investment in expensive aircraft development, while Microsoft cooperated with Nokia on the development of mobile platforms, and on a different scale, many small breweries cooperate to centralize their bottling requirements.

Before considering the possibilities that might ensue from a collaboration project, the commercial manager, needs to ensure that the business objective is clearly identified and the benefits of any collaboration for all potential parties understood .

Collaboration and joint ventures are not without risk, because the necessary organisation may be complex. Commercial managers need to select suitable partners that have the necessary complementary resources skills and assets, and to ensure that the specific business objectives of all the collaborators are clearly understood by all involved. They also need to recognise that in any collaborative venture, there is likely to be an imbalance in the levels of expertise, investment or assets provided by the different collaborators, who are also likely to have differing management styles and culture which may be problematic for good integration and co-operation. In addition the respective partners need to provide sufficient leadership and support especially in the early stages of the venture, in order for collaboration to be successful.

Suitable collaborative partners may initially be sought amongst existing customers or suppliers, where there may be already be an established long-term relationship providing a good understanding of their objectives and operations. Once identified, Commercial managers will need to consider the overall business performance of the potential partner regarding their attitude and level of commitment to the collaboration, their business objectives, their potential contribution and general business reputation. Some limited “due diligence” should then be undertaken regarding the prospective partner’s financial security and credit rating, the compatibility of their management team, overall business performance, reputation with customers and suppliers, and history of previous or current collaboration.

Assuming that a suitable collaborative partner has been identified, and a successful approach made, it is important that the terms and conditions of any such venture should be agreed and confirmed by both sides and a legal agreement drawn up, in order to prevent misunderstandings once the collaborative venture is in progress. Such an agreement should cover;

* The structure of the collaborative venture, – whether it is set up as a separate business where the collaborators are shareholders.
* The objectives of the collaboration.
* The contributions that each of the collaborators will make in terms of finance, assets, resources, management, skills and personnel.
* The ownership of any intellectual property created by the collaboration.
* The management and control of the operation concerning the respective processes and responsibilities to be followed.
* How profit, loss and liabilities are to be shared, and how disputes are to be resolved.

Any agreement should also include an exit process for all respective collaborators, which should include;
* Resolving the distribution of shared intellectual property.
* The protection of confidential information.
* The distribution of any future income arising from the collaboration activities.
* The administration of continuing liabilities such as debts, and guarantees to customers.
Producing income costs money. However, sharing resources and the necessary investment with suitable collaborators can produce additional profitable income at a lower cost than would be required for a solo venture. Collaboration ventures may provide profitable opportunities for the commercial manager at a lesser risk than would be involved in a conventional expansion or take over.

© N.C.Watkis, Contract Marketing Service 16 Jun. 14

June 24, 2014   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance management, business performance measurement, marketing management  Comments Closed

Never Mind Marketing, its people that count

It does not matter how good your marketing plans are, how good your product or service is, or how much money you have to spend, the only real asset any business has is the people who can use its resources effectively to produce profitable income.

The sole purpose of any business is to make money. To make money, a business needs to identify, anticipate and satisfy customer requirements profitably, which requires a wide variety of business activities. Some of these activities are banded together under the term of “marketing” or “sales and marketing”. Without getting into the perennial and pointless argument over what marketing is or is not, if a business is to produce profitable income, then all those activities which directly and indirectly contribute to satisfying customer requirements, ought to be managed collectively under the overall direction of one senior manager.

In the past, many businesses have often been product or service orientated, and have suffered because they have not been sufficiently aware of their customers’ needs and the changing trends in their market. In more recent times, businesses have become financially driven, often becoming fixated with “the bottom line” and the level of short term and immediate profit. However, even this financially driven attitude to business, which concentrates on the profit objective, often tends to ignore the fact that it is the customers who provide the income, and the employees who do the necessary work to get it.

New business practices such as “social marketing”, “e- business”, and even CRM (customer relationship management) tend to concentrate on the communication of the business message and the acquisition of customers. Such activities can be very successful in promoting a message and delivering the customers which produce the income in the short-term. However, while new and inventive methods may initially produce more customers and income, it is generally the more traditional methods of doing business that will retain customers and maintain the flow of profitable income for the future. Generally, it is ability to maintain the reliability of the product and service that retains customer’s loyalty and their willingness to continue to purchase. Thus being aware of all those activities which directly and indirectly affect the delivery of the product or service to the customer is a fundamental to ensuring customer satisfaction and retention.

For the commercial manager who is responsible of producing the income, managing, motivating and directing all the personnel collectively responsible for satisfying customer requirements, is essential for success. While ideally the commercial manager should have charge over all those activities involved in everything that relates to the customer, other than finance, personnel, supply and IT, this is rarely the case. In most cases, commercial managers sit along-side production managers, distribution mangers and others, because that is the way that the business is structured. However, because it is the commercial manager who is responsible for producing profitable income, the actions and effectiveness of those managers who have responsibility for other customer related areas, will be of direct interest to them, as their actions will directly affect profitable income.

Leadership should provide direction and inspiration, but only good management produces tangible results. Commercial managers need to measure all aspects of their areas of responsibilities and as far as possible, those other areas where they have interest but no direct responsibility
Performance measurement is an indispensible part of commercial management. Used properly, performance measurements should be used to illuminate not only performance within a business organisation, but also to indicate where changes are taking place with customers and the trading environment. However, management which is driven by performance measurements alone is likely to erode employee’s confidence and motivation, which will have a negative effect on their overall performance. At the same time performance measurements can help employees maintain and develop their own achievement.

An effective commercial manger will keep their staff motivated by listening to their concerns, assisting with their problems, ensuring that they have the resources and necessary training, and encouraging their involvement in identifying potential improvements as well as problem resolution.

What actions should the Commercial manager undertake to maximize and motivate performance?

The commercial manager should ensure that each employee:

1. Understands their job description, their responsibilities, and reporting lines.

2. Understands the importance of their contribution in the company team and the reliance that other team members will have on them.

3. Understands that the business is there to make money by satisfying customer requirements profitably, and that their individual efforts contributes to making that possible.

4. Is encouraged to express opinions on how improvements may be made in satisfying customer requirements while maintaining and improving profitable income.

The commercial manager should also:

5. Use performance measurements to assist employees maintain efficiency and to indicate change and developments in the business environment.

6. Ensure that all those collectively involved in satisfying customer requirements understand that they must collaborate as a team to produce profitable income and the desired results.

Detailed business and marketing plans, and expensive promotions will achieve little unless the personnel involved are capable, motivated and effectively managed. For the Commercial manager, maximizing profitable income efficiently depends on the effective motivation and management of everyone involved in satisfying customer requirements.

© N.C.Watkis, Contract Marketing Service 07 May 2014

May 12, 2014   Posted in: Uncategorized  Comments Closed

Lessons from the Crimea?

Recent political events in the Crimea erupted rapidly and appeared to have surprised Western Governments. Hindsight will no doubt show that the Russian annexation was predictable, if the decision makers had heeded the warning signs that were there to be seen. Political events often change quickly and apparently unpredictably, but in fact this is rarely the case, as vigilance in the observation and analysis of indicators can usually predict the likely chain of events. Can the commercial world draw lessons from that of the political?

In the commercial world, change may be regarded as the only constant. Predictable change can be managed, but it is the unpredictable change that usually causes problems. For the commercial manager, responsible for producing profitable income for a business, trying to anticipate the future , will always be difficult. Changes in demand, resulting from fashion or technology are just two of the problems that confront the commercial manager. But there are also events which may not be obviously predictable, but which may give rise to new opportunities or alternatively, produce unexpected threats to the income supply or to business operations in general.

Commercial managers are responsible for producing the necessary profitable income for their business. As managers, they will be assessed on how much income they produce and how efficiently they mange and use their resources in its production. But to be effective and to maximize the opportunities for income , commercial managers need to be aware of the threats and opportunities that continually arise from events and developments in the business environment. Opportunities and threats may arise internally from within the business, as well as externally from the business environment.

Internal changes in a company’s performance and capability tend to be those over which the commercial manager may have some control or influence. However, the same cannot be said for the majority of threats and opportunities which stem from external factors that directly affect the business environment. Companies may initiate what is called a PEST analysis, to assess the effects that Political, Economic, Social and Technological factors have on business operations. But to be comprehensive, any analysis of the business environment should also include assessments of competitor activity, new competitive products ,as well as the business and financial strength of customers and the customer base as a whole

While business and general media may be a prime source of information that outlines potential threats and opportunities in the wider business environment, some emerging trends in selected internal performance measurements, may also give timely alerts to potential change and development in the organisation’s specific market. Such indicators are likely to be directly related to sales performance and analysis. Variances from projected levels of enquires in terms of number, type, market segment, location and product group may all indicate developments in the business environment providing both threats and opportunities. Similarly, other useful indicators may also be derived from changes in buying patterns from new and existing customers. Ideally, commercial managers should delegate specialists to monitor and analyse the potential threats and opportunities of the organisation’s business environment. However, they must be prepared to make decisions and to act on the advice of specialists and not ignore them.

Producing the business plan, outlining how investment and resources are to be used profitably, is the commercial manager responsibility. As part of the planning process it is prudent to prepare separate contingency plans to cope with various possible eventualities. This is especially important for large organisations, as their size and organization tends to preclude a rapid response to changing conditions. Whereas, smaller companies tend to have greater flexibility, enabling a faster reaction to changed conditions and opportunities.

What actions should the commercial manager undertake to prepare for the ”unforeseen” event?

* Continually analyse the business environment for threats and opportunities.
* View the trends, identifying potential indicators of change.
* Consider the possibilities
* Outline the best and worst scenarios
* Assess the probabilities of particular scenarios
* Prepare contingency plans to meet the scenarios with higher probabilities
* Maintain the necessary resources to meet contingency plans
* Identify the indicators that would initiate particular scenarios.
* Decide which indicators might call for immediate action
* Be prepared to act quickly

In a rapidly changing world, the successful commercial manager must be vigilant in identifying, observing and understanding those indicators that give rise to both opportunities and threats. The timely enacting of contingency plans can mitigate problems and exploit opportunities.

© N.C.Watkis, Contract Marketing Service 7 Apr 14

April 14, 2014   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing management, performance management  Comments Closed

Mis-selling can seriously weaken your business

Have any of your customers been mis-sold any of your products or services? Perhaps the answer depends on what is understood by the term “mis-selling”.

Mis-selling has recently come to the public notice mainly through problems that have come to light in the financial services industry. In this business sector, it has been shown that many thousands of customers had been mis-sold financial products, which were often insurance packages that were wholly unsuitable for their needs.

So what is mis-selling? Mis-selling may described as encouraging customers to buy products or services by the deliberate or unintentional mis-representation of the benefits and features of a product or service, or through the obscuring of particular terms and conditions in tortuous “small print.”

For the financial services industry, the exposure of mis–selling has had disastrous and very expensive consequences, which have resulted in compensation payments running into millions of pounds. In addition, the subsequent loss of customer confidence and trust in the companies concerned has been seriously damaging their reputations.

For the commercial manager, responsible for producing profitable income for the long term future of the business, understanding how mis-selling can happen, together with its potential consequences is very important if actions are to be taken for its avoidance.

In the financial services industry, mis-selling appears to have taken place extensively in the past two decades involving some of the larger financial service institutions. However, while there appeared to be no evidence of deliberated fraud, mis selling did take place on a wide scale, which resulted in very expensive compensation payments for the companies involved. So why did this happen and what appears to have been the driving factors?

It would seem that in many mis-selling cases, the driving force was the level of commission payments that could be earned by sales staff, which encouraged volume selling. Specialist products were not accurately targeted at specific and identified customer requirements, but at a larger and more generalised market for whom the specialised product was often unsuitable, as the profile of many customers made them ineligible.

In consequence, sales executives were incentivised to sell indiscriminately to unsuitable customers through the payment of commission. This situation was compounded by the ineffective oversight of weak management. While the use of commission appears to have encouraged mis-selling, it does not make the payment of commission wrong.
However, the ultimate responsibility for commission driven mis-selling, lies in a failure of effective management at all levels.

The commercial manager’s task is to maximize profitable income while minimizing the level of costs and the use of assets. However, producing profitable income must be for the long term future of the business. If the level of income is increased in the short term through dubious selling practises, it will have serious effects on the flow of income in the longer term.

What actions should the commercial manager take to avoid the inherent dangers
of mis-selling?

* Ensure that all sales executives fully understand their product’s benefits and features.
* Use training to ensure that all sales staff understand the dangers and potential consequences of mis-selling.
* Use market research to identify and profile potential customers, identifying those factors that make them eligible for the product benefits.
* Prepare a due process to ensure that all aspects of every sale are covered before the customer commits to purchase.
* Maintain oversight of all sales agreements to ensure that due process has been achieved and has been applied correctly. If a sales executive is above average in their results, it pays to understand why they are so successful, so that their successful techniques may help to improve the sales team results in general.

“Caveat Emptor – buyer beware,” means that all customers should proceed with caution for any purchase decision, and to be sure that they understand the suitability and detail of any product/price package on offer, before they commit to purchase. However, while the ultimate responsibility for a purchase remains with the customer, that responsibility can never be an excuse for deliberately or unintentionally misleading them to purchase unsuitable products, so that they become a victim of mis-selling. While in the short term, mis-selling will damage the individual customer/supplier relationship, its longer term effects on the trust and integrity of the supplier may be manifest in reducing its level of profitable income in the future.

© N.C.Watkis, Contract Marketing Service 05 Mar 14

March 7, 2014   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing management, performance management, Uncategorized  Comments Closed

How Big is your marketing Budget?

How big is your marketing budget? Does it contain all the activities involved in producing profitable income? How a marketing budget is compiled, largely depends on how “marketing” is defined..

The Chartered Institute of Marketing (CIM) officially defines marketing as “the management function of those activities which anticipate and satisfy customer demand profitably”. However, increasingly both the business press and the media in general have used the term marketing as a popular alternative for the more specific terms of advertising, promotion and selling. Now there are also other terms such as social marketing, and e-marketing, so that the meaning of marketing has become defused, and its use as a professional word devalued.

Just as the term marketing has seemingly lost its previously formal definition, so the clear idea of which elements of a business comprises a marketing budget has also become vague. The purpose of a marketing budget is for the effective allocation and management of the resources and investment necessary for the production of profitable income. For the commercial manager, the preparation of a comprehensive marketing budget is an essential step in the effective management of all the commercial activities involved in producing sustained profitable income.

The objective of every commercial manager is to maximize and maintain the level of profitable income for the long term, while minimizing the level of costs and the use of assets and investment. Thus the commercial manager needs to understand how each activity contributes directly and indirectly to delivering the product or service to the customer who provides the money for the business.

Using the CIM definition of marketing, it is soon apparent that there are many cost centres involved in “anticipating and satisfying customer requirements profitably”.

Here are just some of them with reasons for their inclusion:

* Warehousing costs – Product is produced for customer demand and has to be stored before it is sold. Thus there are costs for heat, light, power and warehouse wages.
* Distribution costs - Getting the product to the customer involves fuel, postage, freight and associated salaries.
* Advertising cost - Communicating with the market includes media and production costs
* Promotion costs - Promotional schemes, exhibitions and PR expenditure.
* Web-site costs - Includes design, registration and management costs
* Selling costs - The salaries and expenses of all direct sales staff
* Sales office costs Sales admin and marketing salaries, office running costs.
* Discount All discounts on accounts and invoices, because this is a direct cost against income.
* Market research costs Market research is a pre-requisite to anticipate customer requirements.
* Bad debt costs Bad debt results from customer credit management
* IT costs Software costs and licences, hardware rental and lease directly associated with sales and customer support.
* Vehicle costs The cost of vehicles uses specifically for selling and selling support, capital and leasing costs.

In addition, a marketing budget should also include the projected sales income, together with the value of the assets used by the sales organisation, including finished stock, dedicated vehicles and debtors.

The performance of the commercial manager may be judged on the amount of profitable income produced, and the efficiency of its production measured in terms of the level of costs, investment and assets used. The late Peter Drucker, is famously quoted as saying that in business “if you can’t measure it, you can’t manage it.”

It is important therefore that performance measurements should be applied to all the components of a marketing budget, to maximise efficiency in producing income.

In practise, the commercial manager may not have oversight for a number of business activities that relate to the customer, such as production, credit control and relevant IT services. However, in such circumstances, the commercial manager still needs to know and understand the costs and output of all the business areas that contribute to producing income, regardless of whether or not he has responsibility.

The sole purpose of every business is to make money. Ultimately every aspect of business operations must be seen in terms of its contribution to producing income.
For many businesses the marketing budget is still seen in the narrow terms of advertising, promotion, social marketing and other communication based activities. However, for the commercial manager, as well as the chief executive and the finance director, defining all the constituents of the marketing budget is essential, if assets are to be correctly allocated and managed profitably.

© N.C.Watkis, Contract Marketing Service 31 Jan 14

February 7, 2014   Posted in: Uncategorized  Comments Closed

COMMISSIONS AND BONUSES

In many companies, the end of the year whether calendar or financial, marks the opportunity for the payments of bonuses. In recent years, reports of high value bonuses being paid to senior executives of large organisations have caused public criticism and adverse comment in the media, at what may be regarded as excessive largess for questionable results and motives.

Bonuses and commission have long been seen as a way of incentivising and rewarding hard work. For the commercial manager, responsible for producing the continuous flow of profitable income for the business, the use of commission and bonuses are well established tools to help achieve the corporate objectives.

Commissions and bonuses are two different things that are used for different purposes.
In most businesses, commission is specifically related to the process of selling. Its purpose is to encourage the sales executive to make sales. The process of selling, involves identifying the needs of a customer, demonstrating the solution and closing the sale, but also requires considerable motivation and enthusiasm to achieve repeated success. While training provides the necessary skills, motivation and enthusiasm need to be encouraged and nurtured, which is the purpose of commission. Maintaining the motivation and enthusiasm of sales executives to actively seek and contact customers is essential if they are to successfully contribute profitable income to the business. Ideally, sales executives are paid a basic but adequate salary, but with the opportunity to increase their income through their own success in the form of commission. Thus they have a vested interest in maximising their sales income by sharing in the financial income they produce.

Commission may be based on various principles, but generally it is based either on a straight percentage of the total sales income or volume achieved by the individual, or alternatively, it might be a variable commission dependent on the products or services sold. Both systems have advantages and disadvantages for the commercial manager. When commission is paid on the total sales as a flat rate, it does not encourage the sales executive to differentiate between the sales of their products and services that may have differing levels of income and profitability. Thus, if all the products in a range have the same amount of commission, sales executives may tend to sell the easier products which may be less profitable, rather than the more difficult products with higher profitability. However, when differing commission is paid on differing products, it may have a negative effect on customers, who may wonder if products were sold to them on the basis of the commission gained rather than their suitability to the customer. This has been the case where people in the financial sector have been accused of miss-selling unsuitable products to customers, because of the high level of commission that they carried, which has resulted in customers and consumers mistrusting the financial industry and its products.

Because selling is fundamental to producing income, the ability to encourage and reward those directly involved in selling to customers is a strong management tool. However, satisfying customer requirements depends on the collective support of employees not involved with selling, for whom bonus payments may be an suitable form of recognition and appreciation.

Commission is generally considered to be part of the recipient’s payment agreement, giving them a benefit from the income that they produce.
By contrast, bonuses are considered to be discretionary rather than contractual, although that is not always the case.

The benefit of paid bonuses, lies in providing recognition and reward for the work, commitment and results that are in excess of that which would normally be expected of an employee. Bonuses should not be used to reward employees who have merely been doing what they are paid to do. In this regard, performance measurement has particular importance in assessing the criteria for consideration for bonus payment, which may be considered both at an individual or organisational level. As such, bonuses can be a very useful management tool for the commercial manager and chief executive officer (CEO), to recognise and reward those staff members for their commitment and contribution to the business objectives. However, the setting and payment of both bonuses and commission are not without potential problems of which CEOs and Commercial Managers should be aware.

* High commission rates on specific products may distort sales and in some circumstances, such as financial products undermine customers’ confidence in their suitability.

* A habitual and routinely paid annual bonus brings an expectancy amongst employees, which in time may cause them to consider the annual bonus as part of their income on which they have come to rely. Should a bonus not be declared, for whatever reason, the resulting disappointment might damage employees’ commitment and motivation.

* High bonuses to senior well paid executives are often questionable. This is particularly the case when senior executives employed on high salaries, for the achievement of corporate objectives, receive large bonuses for achieving what they were contracted to do. Such bonus payments can appear to be unjustified, resulting often in negative publicity which can be damaging to the corporate image.

Commission payments are a legitimate incentive to encourage sales and produce income, while bonuses recognise and reward commitment and effort over and above what would normally be expected of an employee. Used sensibly, commission and bonuses reward, incentivise and motivate the employees to achieve the corporate objectives, but used casually and carelessly, can de-motivate , and disaffected even the most loyal employees on which the organisation depends.

© N.C.Watkis, Contract Marketing Service 31 Dec. 13

January 14, 2014  Tags: , , , , , ,   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing development, marketing management, marketing metrics, marketing performance measurement, marketing ROI, performance management, performance measurement indicators, Uncategorized  Comments Closed

Mergers and Acquisitions – Proceed with caution

The opportunity for a merger or take-over can often be seen as a quick way to make a bigger and therefore stronger company. However, the resulting organisation and its benefits is not the sum of the constituent parts, but may often result in something less.

Mergers and acquisitions are never simple. At least 50% fail to meet their initial objectives and expectations – sometimes leading to expensive de-mergers. According to KPMG and Wharton studies, 83% of mergers and acquisitions failed to produce any benefits – and over half actually ended up reducing the value instead of increasing it. Businesses undertake mergers and acquisitions for a number of reasons, but all embark upon the process in the expectation of the benefits that they seek will be achieved. So why do so many fail?
Perhaps more time is spent on arranging a suitable and advantageous deal than is spent on
considering the actions necessary to implement the combination of two separate organisations successfully or its potential consequences

Businesses can be divided into two functional areas which may be described “Operations” and “Support”. “Operations” involves all those areas and activities directly and indirectly related to anticipating and satisfying customer requirements, while “support” provides the necessary resources, namely purchasing, finance, IT and personnel.

While the integration of differing and perhaps incompatible IT systems, can be a major problem, it is arguably the integration of the respective “operations” areas that result in the success or failure of the resulting combined organisation. The integration of purchasing, finance, and personnel may be difficult, but because these are not customer orientated organisations, the necessary change over may only require a change of procedure rather than a change of culture and attitude.

For the commercial manager responsible for getting and maintaining the income of the business, the merging, integration and consolidation of two previously separate business organisations, is more difficult, due to the variety of activities involved. Mergers and acquisitions produce a number of opportunities, but with potential consequences. The opportunities may include increased income and market share, as well as improved profitability through rationalisation of organisation and costs.

If the merged or acquired company is a competitor, there will be the advantage of having removed a competitor with the opportunity of gaining their previous customers. However, the integration and rationalisation of previously competing products, does not guarantee the retention of all the acquired customer base. While acquisitions and mergers may bring in new customers, there is no guarantee that the loyal customers of the acquired company will move their purchasing to the offered alternative products. With service based companies, their main asset is likely to be their knowledgeable and experienced personnel. If for any reason the personnel leave before or after the merger, then the acquisition may become an expensive “hollow one” where the desirable “asset” has effectively vanished perhaps taking their customers with them

Success of merger and acquisitions depends largely on the reaction of customers and the respective employees. All customers should be kept informed about how the changes will affect them, especially concerning the continuance of the product and services on which they have come to rely.

Commercial managers need to consider;
* In the new organisation which will be the dominant constituent, for personnel, culture and procedure?
* How are duplicated organisations to be integrated and rationalised? Is there an action plan?
* How should the respective product ranges be merged? – If products are scrapped or rationalised, their existing customers may go elsewhere, diminishing the projected increased customer base and market share.
* If the acquisition supplies a different market which may or may not be related, how is the commercial aspect to be managed? – Will it remain independent but reporting to the Commercial manager, or can part of the support organisation be merged and rationalised to achieve improved profitability and efficiency?
* If the acquired product range is in a wholly different market, then it needs to be evaluated in relation to the demand from its customer base and the market in general in terms of its profitability, its contribution to its profit centre, and the opportunities for profit and market development.
* If the acquired product range exists within the same market, it should be evaluated on its strengths and weaknesses when viewed as competitive products. – How do the acquired products compare with the existing range? Are these products direct competitors, – is so, which if any of them are any of them superior to the existing products, and could be incorporated into the product line? Are any of the acquired products complimentary to the existing products and could therefore be used to expand the existing product range?
* Different organisations have different business cultures and practices, which takes time to change. Sudden and significant change may demoralise staff, and cause resentment leading to distraction and confusion. Maintaining employee’s morale and commitment is essential to minimise the impact of the reorganisation on both the employees and the customers while maintaining the level of customer service.
* Maintaining the morale and commitment of employees by regular and effective communication helps prevent damaging and destabilising rumours. Customers should also keep aware of changes, to retain their confidence.

The success of a merger or acquisition depends of the clarity of the objectives, in terms of intended synergies and financial results, a clear plan for its execution, and the people from both organisations who implement the process. Thus the effective motivation and management of all staff from both constituent organisations, especially those involved in getting and maintaining business and income, is essential if the merger is to succeed and profitable income maintained and increased.
© N.C.Watkis, Contract Marketing Service 29 Nov 13

December 5, 2013  Tags:   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing development, marketing management, marketing metrics, marketing performance measurement, marketing ROI, performance management, performance measurement indicators, Uncategorized  Comments Closed

“New”, “Improved” – (but not as good) Why do companies change successful products?

Why do companies insist on changing the content or specification of their successful products without the consent or request of their customers?

Microsoft made the disastrous product upgrade from the successful, popular and reliable Windows XP to the unpopular and unreliable Vista, which then in turn had to be hurriedly replaced with the successful Windows 7. Kellogg’s altered the recipe for their Special K product and received numerous public complaints by customers because they liked the product as it was and did not want it changed. Fans of Sailor Jerry Spiced Rum in the UK launched an internet campaign to force brand owners First Drinks to change its formula back to the way it was before the product’s re-launch. Then there was Coca Cola’s launch of New Coke, replacing their original product, which then had to be returned following customers’ rejection of New Coke.

Why should companies that have products that are long established, valued by their customers and profitable to their business, seek to “improve” and change them, not because their customers want them to do so, – but because they can? Is the change to benefit the customer, improve the profitability, or to satisfy the personal achievement aspirations of an ambitious executive?
Unnecessary changes to established brands and image can produce a serious back lash from loyal customers, and seriously damage the business.

The principle task of every business is to make money, by the provision of products and services that are designed to provide the solutions to problems that customers have. Successful businesses have to understand customer’s problems and to adapt to meet their changing needs. Yesterday’s products were designed to solve yesterday’s problems and without development, may no longer be the solution to the problem that the customer has today.

While products and their brand image are developed and owned by companies, they are paid for by the customers who buy them. In purchasing the product, the customer expects that the product will satisfy their requirements, whatever they may be. Regular customers expect that the product will deliver to their expectations every time and they come to rely on that expectation. Thus, in a sense, the customer has ownership of the product. Customers have the money, but if the product does not meet their expectation, they do not have to buy it..

Some products are relatively unchanged after many years, because they fully meet customer requirements and there is no benefit to be gained either by the customer or manufacturer in changing them. Other products change and develop to meet evolving customer needs, or improved production methods and materials.

While customers may have an initial resistance to a change in the products that they buy, they generally accept them, if they can be shown how the change actually benefits them. However, simply adding additional features to a product or service that does not clearly benefit the customer, will not increase its value in the customer’s eyes.

For the commercial manager, responsible for producing and maximising profitable income, change is an important factor of business. Making changes to the product or the manner of its delivery may be necessary in order to be more efficient, improve the product or service with additional or improved customer benefits, or perhaps to modernise its appearance, especially with a long established product.

So how should the commercial manager consider the need for change?
Before embarking on any change, however small, the commercial manager should consider several questions, because of the potential consequences.

1. Who is advocating the change – which individuals, what are their reasons?
2. Are changes necessary to meet the changing needs of the customer or the requirement of the product/service provider?
3. If the underlying problems are understood, would a change to the product, its image or the company procedure be an effective answer?
4. A change to a product or service may improve efficiency and profitability, but what would be the effect on the customers’ satisfaction or their perceived image of the business?
5. Who benefits from the proposed change, the customer or the company? – How do they benefit?
6. If the change is cosmetic, how will it benefit the customer’s perceived image of the product and company? How do you know?

For the commercial manager, responsible for the long term income of the business, there is always danger in the possible long term consequences of accepting change that are not customer driven. Many changes that are made by organisations in both the public and private sectors are frequently instigated by executives who “want to make their mark” in the organisation, using it as a stepping stone of achievement to the next job, and moving on before the consequences of their decision making are apparent. All changes to product and service cost money, thus it is important to trial changes wherever possible to ensure that they are acceptable and beneficial to the customer, before committing to irrevocable and expensive investment. Customers provide the business income and it they who decide on the acceptability of change, by maintaining or withholding their custom.

Established and successful products may still need to change over the course of time in order to meet changing conditions and customer requirements. But experience shows that change for the sake of it, especially to satisfy the whims of ambitious executives can easily be damaging to the product and the company’s fortunes. In the eyes of the customer, the product that is “New” and “improved” may not be as good as the original, in which case, perhaps companies should consider that “if it ant broke, don’t fix it.”

© N.C.Watkis, Contract Marketing Service 28 Oct 13

October 31, 2013  Tags: , , , , , , , ,   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance measurement  Comments Closed

Pareto’s principle – a useful tool for customer analysis?

The Pareto principle, generally known as the 80–20 rule, states that, for many events, roughly 80 per cent of the effects come from 20 per cent of the causes. Applying the principle in business analysis can prove to be a very effective business tool, and one of its many areas of application is in that of sales.

It is a common opinion in business; that 80 per cent of an organisation’s sales come from
20 per cent of their clients, thus when applying the 80/20 rule to a customer base, it is often thought that the 20 per cent of the customer base which provide the most profitable income is the area on which the business should concentrate, rather than the 80 per cent which have low profitability.

However, it should be considered that the 80 per cent of the customer base, also contribute to overall income production, but that some customers are more productive than others. Before making any rash decision regarding the customers which constitute the less profitable 80 per cent, it is important to consider how exactly those customers contribute to the interests of the business.

On first glance it might seem that following the application of the 80/20 rule, customers could easily be divided into those which are more profitable, and those which are less so.
This often results in the simplistic idea that it is better to concentrate time and investment where it already shows more profitable results rather than where the results are less profitable. However increasing investment in such a manner and to effectively starve or ignore the less profitable areas without understanding why they are less profitable, can be counterproductive and potentially expensive.

Businesses exist to make money by anticipating and satisfying customer demand. For the commercial manager responsible for producing a continuous stream of profitable income for the long-term benefit of the organisation, balancing the need to make profitable income against the interests of the customer is paramount. Ultimately it is the customer which has the power, because they have the money. The objective of the commercial manager is to maximize the level of profitable income for the long term while minimizing the use of assets and investment. by managing all resources efficiently and effectively.

Before making any decisions that might adversely affect the customer base, there are a number of questions and actions that the commercial manager should consider:

1. How many customers are there, that constitute the 20 per cent and the 80 per cent? – It is important to know how many customers there are and whether or not the customer base is growing, or shrinking?

Concerning the 80 per cent of the customers, commercial managers should consider:

2. Where are they? – Knowing where customers are geographically located and the potential for growing the customer base in those areas is important when considering transport and delivery opportunities and costs.

3. Is the geographical distribution of customers a factor in their lower profitability? – Are there other potential customers in the vicinity of isolated customers that collectively could be developed to greater profitability?

4. What do these customers buy? How much do they spend? How frequently? – This information may enable changes to be made to the service which would benefit the client and improve the level of profitable income produced.

5. Are all customers being offered the right product mix for them? – Would customers benefit from other products or services that could be provided, – how do you know?

6. Consider what might be done for the smaller customer that would encourage them to increase their level of purchase of their existing orders. – Could their order size be increased with the encouragement of discounts or improved credit facilities as an incentive?

7. Do all customers meet the company’s trading requirements in size, order size capability, location? Can this be improved by altering conditions or servicing through other methods?

8. Are credit terms suitable or would a change improve cash-flow and profitability?

9. Analyse and establish the real reasons behind low profitability with the customers that comprise the less profitable 80 per cent?

10. Establish if and how the admin/service costs of the 80 per cent might be reduced without affecting the customers? – Ask the workforce how they would improve the administration system that they work with.

All customers contribute to the size of the business in their contribution to its overall market share. That size of the organisation affects its influence in the market, which also affects confidence of potential customers and ultimately their buying decisions.

Allowing the more numerous but less profitable customers to wither by neglect, in order to concentrate investment on the less numerous but more profitable ones increases over reliance on a smaller customer base, which increases an organisation’s financial vulnerability. At the same time, concentrating resources on the more profitable customers is likely to result in the law of diminishing returns, where additional investment may only result in a marginal increase in income, but with reduced profitability.

The advantage of thoughtfully applying the 80/20 rule is that it enables the customer base to be evaluated in terms of its overall contribution to profitable income, costs, geographic coverage, and market share. As such, those customers which might be deemed less profitable, may well be considered as opportunities for potential growth, rather than seen only as sources of cost and low productivity.

© N.C.Watkis, Contract Marketing Service 18 Sep 13

October 1, 2013  Tags: , , , , , , , , , , , , ,   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement  Comments Closed