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Do You Truly "KNOW" Your Competition?

1/17/2018

2 Comments

 
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“So it is said that if you know your enemies and know yourself,
​you can win a hundred battles without a single loss.
If you only know yourself, but not your opponent, you may win or may lose.
If you know neither yourself nor your enemy, you will always endanger yourself.”
– Sun Tzu

Several years ago all the rage in business books was Sun Tzu’s “The Art of Warfare." Many read the 18 chapters of the book, but few actually delved into a thorough analysis, or, more appropriately, knew how to begin an analysis.

Let’s talk about several methodologies.

Line-of-Business Analysis

Porter's 5 Forces
In 1979 Michael E. Porter of the Harvard Business School developed a framework for the industry analysis and business strategy development called the “The Five Forces”:

1. The threat of substitute products or services
2. The threat of the entry of new competitors
3. The intensity of competitive rivalry
4. The bargaining power of customers (buyers)
5. The bargaining power of suppliers

Without going into great detail and describing the “marketingspeak b-school” lingo, here’s what it boils down to:
​
1. What products do you make?
2. Whom do you compete with?
3. How well do you know your competitors?
4. Where is your product positioned relative to them?
5. How do you beat them?

A Real World Example

Now, let’s dive into some detail. You manufacture a variety of products that compete with other companies. Let’s pretend that you are an end mill manufacturer.

You make carbide end mills as a primary product and you have an offering of carbide burrs. Is the "burrs" product group going to be competitive?
Your Products:
  1. A Style –  Cylinder Flat
  2. C Style – Cylinder Radius
  3. D Style – Cone Pointed
  4. E Style – Cone Radius
Who are your competitors in EACH category?
  • List them all. The first step is to understand who your competitors are.
  • List everyone you can think of and then ask other people within your company, your agents, and your distributors to add to the list. Get the list together.  Remember YOU will not know everyone and you might be surprised what comes out of the woodwork.
  • Break down your competitors by the product categories (in this case, the above 4 listed: A, C, D, E style burrs)
  • Do a SWOT analysis on each category.
  • Now, what else to those competitors make? Do you have the same solutions that they have?
What you might start with may look like something pictured here on the right.
​
Now if your primary product is making end mills and you “dabble” in making burrs how are you going to compete with someone who makes all of the following:
  1. A Style –  Cylinder Flat
  2. B Style – Ball
  3. C Style – Cylinder Radius
  4. D Style – Cone Pointed
  5. E Style – Cone Radius
  6. F Style – Tree Radius
  7. G Style – Cone Inverted
  8. I Style – Oval/Egg
  9. J Style – Flame
  10. K Style – Flame Large
  11. L Style – Tree Pointed
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If you are using a distribution channel, the distributors are going to take the path of least resistance no matter what you do.  You may have a distributor owner telling you “We like you and we want to promote ALL of your products” but in reality, when an inside salesperson gets an order from a customer with A, C, D, E, F and G burrs on his purchase order it’s just easier to place that order with ONE vendor instead of two (and split the order) regardless of what the boss says.

So you’ll have some decisions to make:
Do you expand the offering so it is more complete?  
​Do you just keep the offering where it is at right now?
Are you willing to accept the fact that you will lose some orders within your channel if you don't expand?

At the outset you might not know.  But, that’s not important.  What’s important is that you MAKE A PLAN.  Then take the plan to the field.  See what feedback you get and ADJUST TO MEET THE MARKET NEEDS.
Line of Business Analysis
There’s a great company that does Line-of-Business analysis for you.  It might be worth a few minutes of your time to take a look at their website. They’re called : eCompetitors: Global Industry Dashboard

OODA vs. PDCA

There are two very good concepts you should understand in your planning process.  OODA Loops and PDCA.  I’ll take a minute and explain the basics:
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OODA
Observe, Orient, Decide, Act is a concept originally applied to the combat operations process, often at the strategic level in military operations. It is now also often applied to understand commercial operations and learning processes. The concept was developed by USAF  Colonel John Boyd.  In the fast paced world of business competition it’s a good idea to understand how fighter pilots are trained.

Boyd developed the OODA loop concept to explain how to direct one’s energies to defeat an adversary and survive. Boyd emphasized that “the loop” is actually a set of interacting loops that are to be kept in continuous operation during combat. He also indicated that the phase of the battle has an important bearing on the ideal allocation of one’s energies.  Basicially it comes down to this:
​
When the enemy aircraft comes into radar contact, more direct information about the speed, size, and maneuverability, of the enemy plane becomes available; unfolding circumstances take priority over radio chatter. A first decision is made based on the available information so far: the pilot decides to “get into the sun” above his opponent, and acts by applying control inputs to climb. Back to observation: is the attacker reacting to the change of altitude? Then to orient: is the enemy reacting characteristically, or perhaps acting like a noncombatant? Is his plane exhibiting better-than-expected performance?
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PDCA
Plan, Do, Check, Act is an iterative four-step problem-solving process typically used in business process improvement. It is also known as the Deming cycle
  • PLAN – Establish the objectives and processes necessary to deliver results in accordance with the expected output. By making the expected output the focus, it differs from other techniques in that the completeness and accuracy of the specification is also part of the improvement.
  • DO – Implement the new processes. Often on a small scale if possible.
  • CHECK – Measure the new processes and compare the results against the expected results to ascertain any differences.
  • ACT – Analyze the differences to determine their cause. Each will be part of either one or more of the P-D-C-A steps. Determine where to apply changes that will include improvement. When a pass through these four steps does not result in the need to improve, refine the scope to which PDCA is applied until there is a plan that involves improvement.

Once again, the most important point in all of this is ADAPTION.

Now put on your thinking cap for a minute. Let’s pretend that you make burrs as a ‘convenience’ to some customers.  You’ve discovered that you’ve really been able to cut down your production cost.  So much so that you make a very healthy margin on the ones you do sell.

You have a competitor who started off making burrs.  It’s their core competency.  It’s where they got where they are and NOW they are is starting to make end mills: your core competency. What do you do?
Use the loops: Do the ACT part!

One possibility is that you offer a low price volume promo to your distributors in certain markets to get them promoting your burrs.  Target THEIR core competency!  Go after them where is hurts. Go after them in their strongest market.  BUT, make it a feint: While they are busy trying to keep marketshare, you can expand your business in your core markets.

Don’t be afraid of any of the processes listed.  I’ve heard manufacturers say “I’m just a small company, that stuff is for big companies”  My response is generally along the lines of “How do you think those companies got to be big companies?”
​

Finally, take a look at some other process’ that are out there.  If you can use an already created template to do the reviews and analysis then grab them and utilize them.  The Hoshin Strategic Planning process is a good starting point.

Hoshin Strategic Planning

“The hoshin process is, first of all, a systematic planning methodology for defining long-range key entity objectives. These are breakthrough objectives that typically extend two to five years with little change.

Second, the hoshin process does not lose sight of the day-to-day “business fundamental” measures required to run the business successfully.

​This two-pronged approach provides an extended period of time for the organization to focus its breakthrough effort while continuously improving key business processes day to day.”
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2 Comments

Sales vs. Marketshare – Are you Evaluating Market Potential Correctly?

10/18/2017

5 Comments

 
This article was originally published on an older version of this website in 2012.
The Evolution of a Field Sales Force
Business starts with a product or idea, someone goes out and sells something to someone near them. More customers are found and more is sold, typically, from the manufacturer directly to the end-user.
At some point the manufacturer of the product comes to their first crux point: One of two courses must be chosen:
1. Develop a Direct Sales Force
2. Develop a Sales Channel Strategy
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Within these choices there can be any number of hybrid strategies:
  • A direct sales force that calls directly on end-users.
  • A direct sales force that calls on industrial distributors and sells through them.
  • A direct sales force that calls on “bigger” end-users directly and sells through a distribution channel.
  • An independent manufacturer’s agent network that does any of the above already listed.
  • Direct sales to industrial distributors.
  • The list can go on based upon individual companies and territories.
Generally, there are exceptions to every rule or SOP and, when pressed, all manufacturers will admit to “grandfathered” exceptions.

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The real key to this is that in most cases the management of the sales channel “evolves” along the path of least resistance. There is, at most, a basic understanding of the market areas rather than a plan or “map” of success. Sales Managers evolve over time as well.

Think of a new sales manager like a fur trapper from the last century. He arrives as a tenderfoot and, over time, learns the lay of the land. He protects what he has learned and will only share what she knows with others whom she trusts.
Ok, so where does forecasting come into play? Typically sales forecasts also evolve based upon “What did we do last year and what do you expect we will do this year?”

There’s nothing wrong with that as long as you just want to do better than the previous year. Too many managers get caught in this closed loop system and fail to look deeper into the the business.

As an example, let’s look at that fur trader again. She’s hired a bunch of trappers and has a successful business. He’s impressed because over time, what used to be a terrible area for trapping has got a really hard working trapper and it’s delivering more business each and every year. But in the “great territory” he suspects that the trapper is not working. Times changed. The trapper in the formorly “bad” territory is sandbagging and only working a few days a week because the Beavers repopulated while in the former “great” territory it’s all “fished out”
​
But is that really what’s happening?

Sales vs. Marketshare

RULE #1: EVERYTHING in your forecasting should be about developing MARKETSHARE. 

Let’s jump back into some big picture stuff.

The reason for this is so that you can adequately gage performance in key market areas. If you gage how your territories are performing based only upon sales volume you will not know who is performing up to par and who is not performing.

If one market has a total market potential of $100M and another has only $4M and both territories are generating the exact same sales volume the territories are not equal. But how do you determine where the markets area? How big are they? How should you separate your territories?

I’m sure you’ve heard "Don't try to eat the whole elephant" but instead taking it one bite at a time. But where to start? Where is the target market for your products?

Marketing Campaigns & Military Campaigns

Let’s take a bit of a sidebar. If you understand that most management theory is based upon Military theory then perhaps the best thing to do is take a look at how the Military plans for success.
Operations Planning Model
Operations Planning Model
Think about it: If someone is planning something where lives are at stake they are probably going a lot deeper than any marketing campaign you can envision. If you want a ready-made template for planning your marketing Campaign then take a look at The Campaign Planning Handbook from the US Army War College
​

One of the first things at the tactical level that the military asks is “What is the terrain?” They pull out a map.

Understanding How MSA's Evolved

Maps are a great visual aid to sales planning and forecasting. So, to start, let’s think about how North America was settled. As the westward expansion took place the United States originally set State boundary lines along easily definable geographic lines such as rivers or mountain chains.

​Although many boundaries are along rivers, cities developed on both sides of the river as a result of easy transportation along waterways.  Metropolitan areas developed around rivers. Boundaries for States and Counties where also created using the rivers.
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The boundaries of States are not always the best way to define market territories
Market areas traverse the State Line boundaries.

County boudaries where essentially set up the same way. Population centers, and therefore business, developed along these same transport routes.

​That is why the concept of a Metropolitain Statistical Area, or MSA, is so important.
​
If you are measuring sales success by County it’s almost impossible to see any trends
County Boundaries Unites States
County Boundaries Unites States

Temninology

The United States Office of Management and Budget (OMB) defines Metropolitan Statistical Areas according to published standards that are applied to Census Bureau data. The general concept of a Metropolitan Statistical Area, an MSA, is that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core.

MICROs and MSAs are collectively referred to as Core-Based Statistical Areas or CBSAs

According to the 2000 standards
  • Each CBSA must contain at least one urban area of 10,000 or more population.
  • Each metropolitan statistical area must have at least one urbanized area of 50,000 or more inhabitants. Each micropolitan statistical area must have at least one urban cluster of at least 10,000 but less than 50,000 population.
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Under the standards, the county (or counties) in which at least 50 percent of the population resides within urban areas of 10,000 or more population, or that contain at least 5,000 people residing within a single urban area of 10,000 or more population, is identified as a “central county” (counties). Additional “outlying counties” are included in the CBSA if they meet specified requirements of commuting to or from the central counties. Counties or equivalent entities form the geographic “building blocks” for metropolitan and micropolitan statistical areas throughout the United States and Puerto Rico.

If specified criteria are met, a metropolitan statistical area containing a single core with a population of 2.5 million or more may be subdivided to form smaller groupings of counties referred to as “metropolitan divisions.”
​
As of 2000, there are 362 metropolitan statistical areas and 560 micropolitan statistical areas in the United States. In addition, there are 8 metropolitan statistical areas and 5 micropolitan statistical areas. You can find a much more detailed map from this US Census Bureau link that you can print out

National Highway System

So why is this important?


If you undersantd that cities originally developed along transportaion systems you can understand how markets have developed. As the ‘west’ was settled cities tended to develop along river tranport systems.

​By the late 19th century streetcars led to the development of ‘suburbia’ and made room for the immigrant melting pot. Rail systems began to connect major metropolitain areas and by the mid 1960’s the interstate higway system started to connect the major MSA’s.
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Average Daily Long-Haul Truck Traffic on the National Highway System: 2012

Terrain has a Direct Impact on Travel Time

To truly understand marketing areas you must have a good understanding of the topographical terrain and transport routes that support them. Today, markets develop along interstates. If  markets are disconnected there will be more “windshield time” between accounts.  When reviewing territories it’s always a good idea to understand the limitations imposed by terrain or traffic patterns.
Performance Evalutation
MSA maps are certainly better for taking a look at overall territory structures. Population centers are a good indicator of where business markets are located.

But to really drill down into where YOUR industrial business is located in the manufacturing sector,  you need to overlay a more detailed business map.
​
These kind of maps can be very very large and space does not permit here to depict one. So instead let’s look at some micro markets.
Three Digit Zip Code Map United States
 The US Census Bureau created the foundation of the ZIP Code system based upon population centers.

​MSA’s are a further refinement of that.

Understanding the Market Areas: A Real World Example

Now we’ll dig into the actual data a bit more. Let’s evaluate two sales territories: Northeast OH and Western PA for SIC codes 33-39.
Land Mass
  1. Territory 1: WV panhandle and Western PA = 39,205 square miles (Based upon 3 digit ZIP codes: 150-169; 249, 254, 260-268)
  2. Territory 2: in Eastern OH = 10,487 square miles (Based upon ZIP codes: 440-449)
Territory 1: Western PA
  • Total Companies = 7,306
  • Total Employees = 260,068
Territory 2: Eastern OH
  • Total Companies = 11,208
  • Total Employees = 435,368
SIC 33-39 Map Of Business NE-OH/W-PA
SIC 33-39 Map Of Business NE-OH/W-PA

USMTO Market Growth Data

According to the June 2008 USMTC reports we know the following:
  • Northeast – PA north through New England – 08 sales versus 07 sales up 4.3%
  • Midwest – OH around through WI – 08 sales versus 07 sales up 81.5%
The Territory 2 market had grown substantially more than the Territory 1 market.:82.5% vs. 4.3%.


Territory Sales Comparison
So what to do we know?
At first glance Territory 2 had higher sales dollars. But when we dig into the numbers we can see that:
  • Territory 2 has only 60% of the land mass of Territory 1
  • Companies: Territory 1 has only 5/8 the number of companies in Territory 2
  • Employees: Territory 1 has only 5/8 the number of companies in Territory 2
  • Sales per Employees in territory 1 exceeded territory 2
  • Territory 1 experienced minor market growth compared to Territory 2
rritory Sales Comparison Example
Territory Sales Comparison Example
What can we learn from this?
​

The key to this whole discussion is understanding your markets. As opposed to basing your forecasting on past experience or “gut knowledge” of a market area take some time and dig into the data
Marketshare Potential is probably the best way to gage your success.

Key Questions to Ask:
  • Do I have a good understanding of where all of my markets are?
  • Do I have a good understanding or market potential in each territory?
  • Do I need to look at travel time between accounts?
  • Has business developed right around the corner from me that none of my salespeople are calling on?
  • Should split at territory?
  • Should I enlarge a territory?
  • Are my territory boundaries set up correctly?

References

"Standards for Defining Metropolitan and Micropolitan Statistical Areas; Notice." Office of Management and Budget. Federal Register. 27 December 2000.
U.S. Bureau of the Census. "Metropolitan and Micropolitan Statistical Area Definitions." 19 January 2006. Available from http://www.census.gov/population/www/estimates/metrodef.html. Retrieved on 17 April 2006.

Further Definitions of Statistical Areas

Core-Based Statistical Area
A CBSA is one or more counties with an urbanized cluster of at least 10,000 people. The area as a whole is defined by the interaction between the core and the outlying areas. This interaction, measured by commuting, means that at least 25 percent of people in outlying areas are working in the core. The CBSA is a generic definition of MICROs and MSAs, the difference being core population size.

Micropolitan Statistical Areas
A MICRO is simply a small CBSA, i.e., a county or counties with an urbanized core of 10,000 but fewer than 50,000 in population. Outlying areas included are, again, defined by commuting patterns. As of November 2004, according to the Census Bureau, there were 575 MICROs in the U.S. and five in Puerto Rico.

Metropolitan Statistical Areas
An MSA has an urbanized core of minimally 50,000 population and includes outlying areas determined by commuting measures. In 2004, the U.S. had 361 MSAs and Puerto Rico eight.
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