The Product Marketer

Deal or No Deal?

High-value negotiated contracts are the lifeblood of many businesses. With big ticket, or bundled products and services, the outcome of a deal or group of deals has major financial, competitive and strategic implications. Too often deal managers use pricing as a lever to win deals without understanding the impact on the overall pipeline of deals and future opportunities.

At the latest Gartner CRM Conference in Chicago, Gartner analyst Robert DeSisto predicted that…“through 2009, at least 25% of deal management decisions will be misprioritized because of insufficient customer information, resulting in a reduction of future revenue opportunity by as much as 10%.” His presentation focused on the value of leveraging software solutions to grow revenues and margins.

“As a company receives new quotations, deal managers face the daunting task of choosing, prioritizing and accepting quotations that are most profitable to the company. The customer information acquired and maintained by sales, marketing and customer service needs to be made accessible to deal managers who are making deal decisions.” added DeSisto.

Complicating matters further, most companies have systems to execute a deal after it has been agreed upon. Few however, have the analytics and planning capabilities in place to evaluate the true financial and operational impact of a deal prior to completion. As a result, companies negotiate and accept deals that are unprofitable or in conflict with operational constraints.

Companies would benefit by being able to:

Understand the impact of discounting. Deal managers who discount prices to match their competitors’ and win a deal, rarely realize that they are lowering the “pricing bar” for future deals. They are also impacting the returns for multi-year contracts. To ensure that they are making profitable deals, they should analyze the impact of price concessions on future customer opportunities and the overall pipeline of deals.

Segment customer groups. By segmenting customers, it is possible to create tailored pricing strategies for current and potential customers. For instance, bundling and pricing specific features that a segment values most, goes a long way in winning a deal and maximizing revenues, as opposed to using a strategy purely based on discounting.

Perform win-loss analysis. To answer the question, are we meeting our targets? -- Win-Loss analyses can help managers understand the impact of winning or losing certain deals, and therefore, take a proactive approach to meeting top-down corporate objectives.   

By leveraging software solutions that allow sales, marketing and customer service to integrate and communicate customer data, deal managers can make sure each quotation is handled according to its true value to the enterprise. They should also be able to analyze complex multi-offering deals in the context of the overall deal pipeline and contribution to current and long-term financial targets.

Is your organization making the most profitable deal decisions? I have a checklist that can help you evaluate your decision process.

Email me and I'll send you a copy.

Love Thy Customer (within reason)

How do you define a bad customer?  Gary Ahlquist, SVP at Booz, Allen, Hamilton, puts it this way: 

“In most industries bad customers are those who do three things: they order rarely, they pay slowly or not at all, and they make unreasonable demands.  They want a product or service, but they don’t want to pay for it.  So they end up being tough to deal with or unprofitable.”

In theory, nearly every organization understands the need to focus scarce resources on their most profitable customers.  However, in practice, the vast majority of sales and marketing decisions are made without visibility into the actual margin contribution of key accounts, customer segments, or channels.

In a white paper titled The Customer Profitability Conundrum: When to Love 'Em or Leave 'Em strategists from Booz Allen and the Wharton School explore how companies in different industries use customer analysis to improve overall corporate profitability and make the most efficient use of limited resources.  The article examines when and how to take remedial action to improve poor performing accounts and the implications of prematurely cutting customers loose.

Mitch Rosenbleeth, a VP at the firm, cites an example from his client roster where 30% of the company’s customers were creating 200% of its profits.  Another 50% of the customers were marginally profitable and the last 20% were flat out destroying profits.  Given this scenario, it would seem practical to simply sever ties with the bottom 20%.  However, as Rosenbleeth suggests, firing customers should be a measure of last resort.  Instead, his client changed the way it served its least profitable segments by employing a well thought-out model designed to address specific areas of margin leakage that could potentially bring these customers into the black.

As Wharton marketing professor Barbara Kahn points out:

“It’s more expensive to acquire a new customer than retain an existing one.  It’s even more expensive to bring back a customer that you’ve gotten rid of.  It’s costly and it’s a mistake you don’t want to make.”

So how do you know when to love ‘em or leave ‘em?  Well in most organizations, it’s not a straightforward task.  This is because, despite having an array of information systems in place, most companies lack the ability to estimate, allocate and capture the true cost-to-serve.  The data that is needed is usually scattered across the organization and the existing tools available to sales and marketing teams often don’t support such analysis.  As a result, product marketers are left to rely on their instincts to manage this critical issue, or worse they simply ignore it all together.

Fortunately, there are new analytical tools emerging that enable companies to leverage the vast amounts of data that reside in disparate sources.  Transactional data from ERP systems can be compiled with customer data from CRM systems and a host of other ad hoc databases and spreadsheets to form a single planning repository.  Once in place, this repository can serve as the basis for a sophisticated model that is needed to support on-demand customer profitability analysis.

More importantly, once remedial action plans are developed, they can be run through the system as what-if scenarios to simulate forward impact on financial and operational metrics.  Once armed with this kind of insight, product marketing groups can finally make educated, fact-based decisions about important issues such as with whom, and to what degree, they should show some love.

Product Marketing Disconnect

Many of us in product marketing would like to describe ourselves as innovators, creative problem solvers, and thoughtful risk-takers.  However, when it comes to rethinking the way we approach critical decision-making processes that impact our business, we tend to be a bit set in our ways – even when we know it’s costing our company money.

An article by Larry Dobrow, published in October’s 1to1 Magazine summarizes the findings from a recent study conducted by the Business Performance Management (BPM) Forum in which over 150 companies participated.  The final report depicts the product decision-making process at many large companies as plagued by any number of effectiveness- and efficiency-draining problems.

Respondents expressed dismay at the quality of data being conveyed between product marketing and other departments, with 70 percent ranking it "average" or lower. About 80 percent of respondents acknowledged that they rely on data generated by and communicated via spreadsheets, regardless of other, more sophisticated data technologies that may or may not be in place. That could be due to a serious disconnect: Nearly 70 percent of respondents say they don't like the software they use for product portfolio planning and competitor analysis and pricing, among other activities.

Why do product marketing groups find themselves in this fix?  According to Dobrow, experts point to a reactionary attitude toward the use of data – basing decisions on prior events, rather than on information that could help predict future trends.

Richard Irwin, general manager of business intelligence and integration solutions at Junction Solutions suggests: 

“Marketing people only understand the systems that do reporting and the ones, like spreadsheets, where they can see exactly where their data goes.”

And Rick Barkal, Infogix unit leader adds:

“One part of the company has no idea what the other is up to.  It’s about people, process, and technology.  If you don’t align the three, you’re going to continue to have the same problems the BPM study talks about.”

What’s your opinion? We’d like to know.  So here’s the chance for all of the innovative, problem-solving, risk-takers among us to weigh-in.