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MARKETING
By BRIAN TRACY AMACOM
Copyright © 2014 Brian Tracy
All rights reserved.
ISBN: 978-0-8144-3422-2
CHAPTER 1
The Purpose of a Business
MANY PEOPLE think that the purpose of a business is simply to make a profit. The real purpose, however, as Peter Drucker explained, is to "create and keep a customer." All the efforts of a successful business are aimed at creating customers in some way. Profits are the result of creating and keeping customers in a cost-effective way over time.
The cost of creating customers initially is very high. The cost of keeping them is far lower than the cost of creating them in the first place. If you study the companies that are the most efficient at marketing, you will find that their strategies are all aimed at creating customers and then holding on to them.
Quality as a Marketing Strategy
Perhaps the most profitable marketing strategy is that of developing your products or services to a high level of quality. Quality is the most powerful and effective of all marketing strategies. Fully 90 percent of your business success will be determined by the quality of what you produce in the first place. People will always buy from a quality supplier, pay higher prices, and return over and over again to a company that provides them with high-quality goods and services.
What is quality? This subject has been discussed and debated for years. Philip Crosby, founder of the Quality College, said that "quality is the degree to which your product does what you say it will do when you sell it, and continues to do it."
Perhaps the best definition of a brand, which is your reputation in the marketplace, is "the promises you make and the promises you keep." Your quality rating is determined by what percentage of the time your product or service delivers on the promises you made to attract your customer to buy in the first place.
The second fundamental strategy for successful marketing is quality service. According to PIMS (Profit Impact for Marketing Strategy), a study conducted over many years by Harvard University, the quality of a product is contained in two factors: the product itself, and the way the product is sold and serviced.
It is not only the product itself, but the way that you treat your customers, from the first contact through their entire time with you using your product or service. People will always come back to a quality supplier of goods and services, no matter what the price.
How They Feel About You
There is another critical factor in marketing success, and it has to do with relationships. More and more today we are finding that it is the quality of our business relationships that determines whether we create and keep a substantial number of customers.
Sometimes I ask my audiences, "What percentage of people's decision making is emotional and what percentage is logical?"
After they have thrown out a few answers, I tell them, "People are 100 percent emotional." They decide emotionally, and then they justify logically. It is how they feel, and especially how they believe they will feel after the purchase, that determines whether they make the purchase at all.
Jan Carlzon, the former president of SAS Airlines who made SAS one of the most profitable companies in Europe, wrote a book about his experiences called Moments of Truth. In this groundbreaking book, he pointed out that every customer contact is a "moment of truth" that has an effect and can largely determine whether or not that customer ever does business with you again. Since the cost of satisfying an existing customer is about one-tenth of the cost of marketing, advertising, promoting, and selling to a new customer, it is the companies that can create and keep customers by taking excellent care of them that are invariably the most profitable and fastest growing.
Buying Customers
Each company is in the business of "buying customers." All companies have a specific "cost of acquisition," whether they know what it is or not. This is perhaps the single most important cost factor in the success of any business.
Your cost of acquisition is composed of all the monies that you pay to any person, and in any way, to buy a customer for the first time. A company stays in business if it can buy customers at a lower amount than the net profit that the customer will yield to the company in the course of the customer's buying lifetime.
Whenever you read about companies that have sales in the millions or even billions of dollars, but still lose money, you are seeing an example of the old saying: "We lose money on every sale, but we hope to make it up on the volume."
When companies lose money, it is primarily because the cost of acquisition to that company for an individual customer is greater than the total profit that the customer will yield to the company.
If your company can buy customers at a lower cost than the profit you can earn from that customer, you can spend almost any amount to buy more and more customers. This is one of the great secrets of business success, and it is a core requirement for effective marketing.
CHAPTER 2
Four Approaches to Successful Marketing
THERE ARE four ways that you can approach your market with your products and services.
Creating Utility
The first is by creating utility, usefulness, and by satisfying the needs of your customers to achieve a specific result. This approach requires that you offer customers something they need and can use to accomplish their other goals. A perfect example is a shovel or a truck, each of which has utility value, but maybe not the end that the customer has in mind. You've heard it said that "people don't buy drills; they buy quarter-inch holes."
An example of a new industry that was built on utility value or needs is FedEx. Years before Apple created entirely new industries for the iPod, iPhone, and iPad, FedEx created an industry for overnight mail that never existed before. Fred Smith, the founder of FedEx, saw an immense need for rapid letter and package delivery overnight because of the slowness of regular mail.
Look at your market today. What will your customers and potential customers want, need, and be willing to pay for in the months and years ahead? As Peter Drucker said, "The trends are everything." What are the trends in customer demands in your market? If you can answer this question accurately, you can often leapfrog over your competition and dominate a new market even before it emerges.
Pricing Properly
A second approach to marketing is by changing your pricing. By bringing your goods and services into the price range of your customers, you can open up entirely new markets that do not today exist. Henry Ford became one of the richest men in the world, after struggling financially for decades, because he had this rare insight. He saw that by mass producing the automobile, he could get the price down to the point where most Americans would be able to afford one. In achieving this goal, he revolutionized manufacturing and mass consumption forever.
Many companies have been able to achieve market leadership by focusing on bringing their prices into the affordability range of more customers. What we have found is that the greater your market share, and the lower your cost of production, the lower the price that you can charge. The Japanese use this strategy brilliantly year after year. First of all, they price their products and services as low as possible to gain market share. As they gain market share, they begin to enjoy economies of scale, manufacturing their products at ever-lower prices. They then pass the savings on to their customers with even lower prices and increase their market share once more. Eventually, they end up dominating many of the markets they have entered.
Your Customer's Reality
The third strategy in marketing is adapting to the customer's reality, both social and economic. A perfect example is how Sears became the world's largest retailer of its time by initiating an unconditional money-back guarantee policy in the catalog business.
The customer's reality up until that time was that if they bought something that didn't work or didn't fit, they were stuck with it. Sears realized that the way to overcome that major barrier to purchasing was to adapt their product offering to the customer's reality, which led to a revolution in merchandising and retail sales.
Every product offers a "key benefit" that is the primary reason the customer would buy that product. Each product or service also triggers a "key fear," which is what holds the customer back from buying the product or service in the first place. For example, customers are terrified of risk. They are afraid of paying too much, getting the wrong product, losing their money, and getting stuck with something that is inappropriate for their purposes. Whatever their fear is, it is the main reason that qualified prospects hold back from buying any product or service, at any price.
When you can emphasize the key benefit, the unique added value that a customer will receive by buying your product or service, and at the same time take away his or her major fear, you can open up an enormous market for what you sell.
Delivering True Value
The fourth approach to marketing strategy is for you to deliver what represents "true value" to the customer. True value can only be identified by working closely with your customers.
IBM is the perfect example. The company controlled 80 percent of the world computer market in its heyday, and for good reason. IBM discovered that in the field of high-tech and high-end equipment that sells for hundreds of thousands or millions of dollars, it was not the functionality of the computer that attracted buyers as much as it was the assurance the computer would be serviced and repaired quickly if something went wrong. IBM provided not only world-class computer products, but also the security that once you bought from IBM, you were protected with perhaps the best service support in the world if the equipment broke down for any reason. This was "true value."
CHAPTER 3
Three Key Questions in Marketing
THERE ARE three key questions to ask with regard to marketing, especially with a new product or idea. Often, if your sales are not satisfactory for any reason with an existing product, you can ask these three questions. Most companies ask question number one, but it is astonishing how many companies that I consult for have never asked the other questions.
Does a Market Exist?
The first question is: "Is there a market?" Are there people out there who will actually buy the product or service that you're thinking about bringing to the market? Remember that the basic success/failure ratio in new products is 80/20. That is, 80 percent of all new products will fail. They will not achieve significant market share and the company will lose money and sometimes go out of business.
Twenty percent of new products will succeed in that they will pay their costs of investment and turn a profit. One of these twenty will be a star. Of 100 new products that are introduced to the market in any given year, only one is going to be a runaway bestseller. Think, for example, about the market for new applications for smartphones.
MARKET RESEARCH
In 2012, U.S. companies spent more than $8 billion on market research of all kinds. The primary reason companies buy market research is to discover whether or not there's a market for a new product or service idea, who or what constitutes that market, and what the product or service would have to do to be sold at a price that would yield a sufficient profit. And even with all this market research, fully 80 percent of new products and services fail within the first year or two.
Today, there is a better strategy. And it is to "get a customer first." Whenever you have a new product or service idea, immediately call a customer in person (no surveys, questionnaires, or focus groups) and tell this customer that you have this new product or service idea. Would he or she buy it? How much would the customer pay for it? What flaws or weaknesses does the customer see in your initial idea for a new product or service?
By doing early market testing, and by asking your customers for their candid opinions, you can drastically speed up "time to market" and reduce your costs of new product development at the same time.
What Is the Size of the Market?
The second question you need to ask is whether the market for your product or service is large enough. This is a question that, surprisingly enough, people don't ask and answer. Yet you need to know: Can you sell enough of your product or service to make it economically worthwhile?
In your initial analysis, you determine exactly how much it will cost to produce your product or service, and the price that you will have to achieve in order to make the product or service profitable, especially in comparison with other ways you can spend that same amount of money.
You then determine how many units of your product you will have to sell in a week, a month, and a year to make this a worthwhile investment of your time and trouble. Finally, you determine if there are enough potential customers out there who will buy your product or service in the time span you have predicted.
Is the Market Concentrated?
The third question to ask is: "Is the market concentrated enough?" Just because you can find people in different places who say they would buy your product or service, that's no assurance that the market is concentrated enough that you can reach it with existing advertising methods and existing market channels.
You may find that there is a market for 100,000 units of a new product or service, but it is spread out all over North America in 10,000 cities, towns, and villages. How are you going to reach that market in a cost-effective way? Remember, you are in the business of buying customers. Once you have a product that people will buy, your cost of acquisition will be the critical factor determining your success or failure,
A product or service for which there is a large market may not be feasible for you simply because you cannot promote to that market with existing advertising media or through existing market channels. The good news today is that it is possible for you to reach vastly more specialized markets in small areas with the Internet, and at lower prices than ever before.
It has been said that the Internet is the best and worst of all marketing tools. It is the worst because the majority of people that you approach will have no interest and will probably delete your message upon receipt. It is the best because you can reach hundreds of thousands and even millions of prospective customers at a very low cost, enabling you to find the proverbial "needle in the haystack."
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Excerpted from MARKETING by BRIAN TRACY. Copyright © 2014 Brian Tracy. Excerpted by permission of AMACOM.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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