What Can Building Material Companies Learn from CPG?

This is a reblog from Whizard Strategy that I co-wrote.

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To make your building products company a better marketer, take a page from the Consumer Packaged Goods (CPG) new product powerhouses:

  • Know the user
  • Support your new products and your brand
  • Measure the results

Three things building material companies can learn from CPG marketers.

1.   CPG marketers focus on meeting consumer needs when they develop a new product.  Most building product companies focus too much on themselves.  They usually limit their thinking to utilizing their technologies or manufacturing capabilities to avoid any large capital expenditures.  This limits the possibilities.

If building product companies would start with the end-user, they would develop products that solve problems, reduce frustrations and drive sales for themselves. Consumers didn’t ask for the Swiffer because often, customers don’t know what they need either.

2.  CPG marketers give new product introductions the best chance of success.  If the first launch fails, they don’t abandon the idea.  Instead, they continue to invest, improve and believe in their product.  They don’t have a “fail fast” mindset.

Most new products fail.  Recognizing this, CPG companies put an A team on new product introductions, where most building product companies put a B or even C team.  I look at new product introductions like taking your money to Las Vegas.  I would want my best players at the table.

Instead, building product manufacturers use their A team as baby sitters for their cash cow products.   And the babysitter will not only not help the new product, but, in many cases, will try to sabotage it.  He doesn’t want it taking sales from him.  And even if it doesn’t compete with him, he doesn’t want to share the spotlight with anyone else.

This doesn’t happen with CPG companies because they have different measurements.

3. Brand or product managers are charged with increasing the value of an asset in a CPG company along with delivering ROI.  Building product managers are usually charged with delivering short-term profit with no responsibility for the overall value of the product or brand.  If they trash the value of the brand, who cares, as long they made their quarterly numbers.

This results in building product managers focusing on the short-term.  There is no reward or cost for them to ravage the value of the product or brand for the short-term.  By the time someone recognizes that the value of the brand has been reduced, they will have been promoted and it’s easy to blame the next guy.

There are a few companies like Kohler and recently Elkay that act more like CPG and they are benefiting from it. Challenge your company to think like CPG powerhouse Johnson & Johnson and you’ll really clean up.

Good Selling!

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Are You Pricing for Volume or Profit?

imagesCAMM6VP4Your costs are rising and your margins are declining.  Worse, your retail partners are demanding greater margins and it’s a scorecard measure.  You need a price increase but you run the risk of triggering a line review or losing placement.

Let’s start with a basic premise: our job in Sales and Marketing is not to merely generate volume but rather to generate gross margin.  How then can we overcome pricing issues?

Profitability without growth will only serve to create an environment with no opportunity.  Growth without profitability only serves to create a poor performing large company.  Profitability without growth will only serve to create an environment with no opportunity.  Understanding the balance between volume and price is your job!

Survey after survey of retailers, dealers, distributors, contractors and homeowners shows that price is rarely the key driver in the decision process.  In fact, it is usually 4th or 5th.

When you buy a shirt or blouse, what factors do you consider?

  • Is price the key?
  • or style, color, fit, brand, or image?

How many of you buy clothes or anything else based on price as the #1 criteria?

Let’s take another example: a motorcycle helmet.  Is price the deciding factor? Who buys the cheapest motorcycle helmet?

Business is a Game of Margin – Not Volume!

Business is a gameToo many companies believe that volume and market share are the secrets to business success.  Yet regularly billion dollar corporations file for bankruptcy in the U.S.  When financial trouble comes, companies “cut price” in an effort to drive top line sales.

Remember, it is the buyer’s job to discount your value, while simultaneously securing it.

Your goal: Implement a pricing plan that provides leadership to the industry and communicates your desire to . . .

  1. Stabilize the market
  2. Capture your value
  3. Incentivize your customers to trade up
  4. Earn a reasonable return

To maximize your pricing and profitability you must:

  • Take a leadership role
  • Understand what price is
  • Sell your value
  • Recognize that being competitive is more than just price

It starts with pricing leadership.  You must take a leadership role…

  • Price leaders generally have brand preference.
  • Price leaders generally have the largest and strongest distribution system.
  • Price leaders generally have a technological advantage or leadership that customers generally want to be associated with.
  • Price leaders generally have scale.
  • Price leaders generally have created either real or perceived value for their goods and/or services.
  • Price leaders have a competitive cost position.

Finally and most importantly,

  • Price leaders have the courage to lead.

The ultimate goal in managing price competition is to create a stable competitive environment where you can earn the best possible sustainable return on investment.

The forgotten elements of price

trade-show-specialsMost everyone thinks of the invoice price and terms.  But these are the forgotten values of price:

  • Growth rebates
  • Promotional allowances
  • Show specials
  • “Buys”
  • Advertising allowances
  • Co-op plans
  • Pallet configurations
  • Terms
  • Price protection
  • Builder rebates
  • Contractor rebates
  • Parade of Home/Model Home allowances
  • Pick-up allowances
  • Guaranteed service cycles
  • Merchandising allowances
  • Service
  • Packaging
  • Customer accommodations
  • And more that are unique to your industry

Each of these elements makes up your pricing – and your value – to the buyer.  Don’t forget them when negotiating and remember they all are eating away at your account profitability.

Sell your real value

Your real value to your customer is the incremental advantage they get from doing business with you.  This list is generic, but you can use it to start building your own:

  • Deep customer relationships
  • Intimate customer knowledge
  • Shopper Knowledge
  • Broad product lines
  • Facilities nationwide to provide service and consistency
  • Technology and innovation
  • Outstanding quality
  • Packaging leadership
  • Brand awareness
  • Retail expertise
  • Merchandising and promotional ability
  • Lead generation
  • Customer service support
  • Web-based dealer portals
  • EDI
  • Industry integrity and financial clout
  • Multi-product accessibility
  • Accessibility to senior management
  • Online consumer education and support
  • And others unique to your company and position

You should already have an idea based on the market.  YOU own the process.  Homework is critical, so ask a lot of questions…starting with what do we get for making the price move?  That’s the biggest question of all!

Being competitive is more than just price

"What's the price?"Another key question is to ask what’s the competitive situation?  Don’t just shout “we’re not competitive! to the product manager or your sales manager.  Being competitive is more than just price.  Competitiveness is in the eyes of the beholder!

  • What’s the customer’s commitment to us — 25% or 100%
  • What’s the overall volume compared to other customers in the market?
  • What’s the competitive price on “like” product?
  • Who’s the competitive manufacturer?
  • Who is the distributor involved who quoted the price?
  • Is this the price on the invoice?
  • Is freight included?
  • What’s the price after all rebates, discounts, etc.?
  • Is this one time only?  For a job?  What’s the duration of the quote?
  • How does the competitor go to market?  Do they have brand identity, service programs, marketing support etc.  What does the customer like about the competition?
  • How will the competitor respond if we make a price move?
  • Will the competitor respond by taking our new price offer to accounts we do not have positioned at this price – in other words, lateralize the offer?
  • What other of our customers will be affected by this lower price?

What added value can you offer?

  • What else can we bring to the party other than price?
  • How can we help grow the customer’s sales?
  • How can we lower their cost?
  • Can we use any of our unique capabilities to keep from cutting the price?

Marketing is all about 4 P’s, one of which is Price

Make sure you spend as much time understanding pricing as any other one of the P’s.  Pricing deserves respect, attention and creativity.  You will be rewarded with greater profitability and be more competitive in the marketplace as a result.

For other Channel Instincts posts on pricing, see What Does “Your Price Is Too High” Really Mean? or Is Pricing Making You Go Bananas?  

For a Channel Instincts post on expanding the 4 P’s of marketing to 13 P’s, see The 4 P’s of Marketing Aren’t Enough Anymore! 

4 Simple Steps to Better Customer Engagement

© elkor 2009Engaging early and often will transform your customer meetings into relationships that are more strategic and more proactive.

One of the most powerful ways of engaging your key customers is to share with them your latest marketing concepts. Not only does this help to feed new ideas but it helps to build value-adding partnerships with your top-priority customers.

It also continues to prove how you are helping to build their business and not just your own.

Creating relevance by hearing what your customer wants

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At the core of relevance is hearing what your customer is looking for and crossing that with the insights you’ve drawn from your broader knowledge of the category and their performance within a larger group of customers.

So how can you create relevance?  By following this simple, four stage approach with each customer you have:

  • Inspire
  • Investigate
  • Innovate
  • Integrate

Each step is unique and is part of the entire process. And each step is at least one customer meeting. The middle steps may involve more than one meeting as you iterate and create together.

It all starts with inspiring your customer that you have a solution that will reach their goals faster

The Inspire stage is one of exploration and mutual goal-setting. Fundamentally, you are beginning to create a reputation for delivering results and providing leadership in driving their business goals.

Inspire

Inspire

  • Share who you are
  • Explain where you are going – this is critical to share a larger vision for the category and how you plan on driving it
  • Learn where they are going so you can share your goals together
  • Inspire your customer to partner
  • Begin laying the foundation that you will deliver on your promises

Know your customer better than they know themselves

The Investigate step is where you begin seeking early customer feedback and alignment on your initiatives. In reality, you are recruiting your customer as a partner in development.

Investigate

InvestigateTo create relevance, search for sources of insights:

  • Conduct User and Shopper research
  • Leverage Industry and Competitive knowledge
  • Perform a Marketing Audit
  • Seek Customer feedback

Your goal is to show your customer that you are developing solutions that are aligned with their goals.

Innovation in everything you do

The Innovate stage is when you translate all the insights you’ve discovered and develop solutions that you can share with your key customer. In fact, the thinking may help all of your customers, but the most strategic are the ones who should get the end result first and with the best support your company can muster.

Innovate

Innovate

Translating insights into creative solutions:

  • Product innovation
  • Packaging innovation
  • Merchandising innovation
  • Supply chain innovation

Your goal with this stage is to prove that you are an innovator inside the category and are creatively working to grow your business with all of the tools at your disposal.

Making it happen: Transforming customer meetings into relationships that are more strategic and more proactive than ever before

The last step in the process is implementation.  The implementation stage is easy to rush.  You’ve been deliberate in this process so far.  Now is not the time for shortcuts.

Integrate

Integrate

  • Check in again – are the customer’s goals aligned with yours?
  • Map it out
  • Get your timing right
  • Execute the plan

With this simple process of engaging early and often, you can transform your customer meetings into relationships that are more strategic and more proactive than ever before.

Good Selling!

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