Small Business Management MGMT5601 Workshop 2 Part A ...€¦ · Small Business Management MGMT5601 Workshop 2 Part A: Creating Customers ... Creating a Business Generating System

© Mazzarol 2018 all rights reserved

Small Business Management MGMT5601

Workshop 2 Part A: Creating

Customers

Professor Tim Mazzarol – UWA Business School

UWA Business School MBA Program [email protected] MGMTG5601

©Mazzarol 2018 all rights reserved


• Understand and apply the concepts

used in marketing, sales and service.

• Identify customer needs and wants to

create customer delight.

• Develop a market segmentation

strategy.

• Understand the sales process and

sales cycle.

• Develop a marketing strategy.

• Review the Small Business Diagnostic

• Address Action Learning Task 2.

Workshop Overview


In this workshop we aim to:


Action Learning Tasks and Small

Business Diagnostic


Quick Quiz

Discussion

• Complete the Marketing Quick Quiz

• What does this tell you about your current marketing practice?


ALT 2 – Marketing & Sales

• Know your customers and why they buy.

• Research customers and segment.

• Develop common sales forecasting techniques.

• Build common sales force ethos.

• Train sales team in common sales strategy or methodology.

• Get all employees to be effective sales people.

• Keep sales metrics to monitor your sales team’s performance.

• Link marketing activities to sales efforts.

• Leverage word of mouth referrals for marketing.

• Develop a formal marketing strategy/plan.

How to systematically generate new business and track existing sales:


ALT 2 /Diagnostic – Customer Interface

• Regular customer feedback over service

performance levels.

• Checking of customer satisfaction levels.

• Regular use of informal customer surveys.

• Integrate customer feedback data into

product and service database.

• Monitor the customer’s “value” perception

over your services.

• Formal customer tracking over purchasing

patterns.

• Formal customer service training for staff.

• Long term customer partnering.

• Problem seeking problem solving sales

• Customer delight.

How to monitor customer satisfaction and generate customer delight:


Marketing Defined


• “Marketing encompasses the

entire business. It is the whole

business seen from the point of

view of the final result, that is,

the customer’s point of view.

Concern and responsibility for

marketing must therefore

permeate all areas of the

enterprise”– Peter Drucker

Identifying and satisfying customer needs for mutual benefit


A small business marketing framework

Source: DUBS 1992

Marketing Strategy

Customer Needs

Market Performance

Environmental Awareness

Selling

Marketing Mix


Customer Needs

• What are your key customer

needs?

• How are these segmented?

• Which needs are best served

by your firm?

• Can you develop Unique

Selling Points (USP)?

Identifying customer needs & segmenting the market


Market segmentation

• Definition– The process of breaking down a

market using a range of variables into groups of customers with common requirements.

• Benefits– Better understanding of customer

needs

– Better targeting of resources

– Better opportunity for competitive advantage over less focused competitors

• A segment needs to be– Measurable

– Substantial (enough)

– Accessible

– Actionable


Market segmentation criteria

C

H

A

R

A

C

T

E

R

I

S

T

I

C

S

1. Demographic

2. Geographic

3. Response

4. Psychographic


Australia’s generationsB

UIL

DE

RS Born before

1946

3.02 million

14% of population

2% of workforce today

0% of workforce 2020

BA

BY

BO

OM

ER

S Born 1946-1964

5.28 million

24% of population



GE

NE

RA

TIO

N X Born 1965-1979

4.64 million

21% of population



GE

NE

RA

TIO

N Y Born 1980-1994

4.65 million

21% of population



GE

NE

RA

TIO

N Z Born 1995-2009

4.22 million

19% of population



Source: McCrindle Research (2010)

Values:

• strong work ethic

• conservatism

• respect of

authority

• reliability

• commitment

Values:

• desire for

freedom

• of choice

• of individualism

• optimistic outlook

• socially conscious

Values:

• cynical

• self-contained

• desire for career

flexibility

• don’t value

experts

• value friendships

Values:

• independent

• aspire for success

• skeptical of power

• seek freedom of

lifestyle

• Tech-savvy

• avoid

commitments

Values:

• highly tech-

focused

• Web 2.0 linked

• impatient

• seek instant

response


Key concept: “Customerising”

• Therefore:

– Focus on the customer not the product.

– Research the customer’s needs & wants.

– Segment the market.

– Adapt the product or service to the customer.

– Seek competitive advantagevia value adding not cost cutting.

• Customerising:– Customer commitment – what

is the customer impact of any decision?

– Networking – working with those who can assist you.

– Problem Seeking / Problem Solving – customer problems are opportunities.

– Customer Delight – exceeding customer expectations.

– Market Development – the core competencies for future growth?

“Customers buy hopeful expectations not actual things” Theodore Levitt


Key concept: “Customer Delight”

• What % of customers are repeat?

• What is the customer’s buying

cycle?

• How much is a loyal customer

worth to the business?

• How much time do you spend

winning new customers versus

nurturing existing ones?

Customer delight is being able to consistently exceed the industry

benchmarks for speed, quality or performance.

Customer delight is measured in terms of the level of unsolicited repeat

business and word of mouth referrals that the business receives.


Small Business Marketing


Discussion

Small Business Marketing Video

• What were the key lessons from the

small business owners in relation to

marketing their firms?

• What was their approach to marketing

different from larger firms?

• How did they create and retain

customers?


Selling

• Who does the selling ?

• How well are they organized and briefed to sell the benefits (USPs) and project the company image ?

• How effective the feedback is

– On customers, competitors and other influences

• Conversion rates from sales efforts

Creating a Business Generating System


Sales platforms and business generation

• Basic Principles:

– No Customers No Business

– It is easier to sell to existing

customers than new ones

• Key Indicators:

– How many sales needed to break

even?

– What is the average order size?

– Conversion rates: quotes to sales

– Conversion rates: leads to quotes


Business generating systems

• What motivates customers to buy the product or service?

• What search process do they go through to find a supplier?

• How do they chose to buy from you?

• What is their satisfaction before and after purchase?

• What has made them buy again if they are repeat customers?


Where to you find your customers?

The Top of Mind Marketing & Sales Approach

Source: Naylor & Greco (2002)

Traditional Marketing Top of Mind Marketing

Current Customers

Prospects

Mass Market

10%

10%

10%

80%

60%

30%

10/30/60 Formula


Professional selling framework

OPEN

THE

CASE

COMMUNICATE

THE CONCEPT

MAKE

THE

APPROACH

THE

SALE

FIND

THE

PREMIUM

PROFILE

OF A

PROSPECT

ABILITY TO OBTAIN

REFERRED LEADS

Source: Cotton (1995)


Develop a sales platform

Source: DUBS 1992

Step Item Measure Information Source

1 Annual sales target $72,000 Business plan target

2 Average order size $2,000 Previous experience

3 Orders needed each year 36 Step 1 divided by Step 2

4 Orders needed each month 3 Step 3 divided by 12

5 “Conversion Rate” of quotes to sales 1 in 3 Market research /

experience

6 Number of quotes needed each month 9 Step 4 x Step 5

7 “Conversion Rate” leads to quotes 1 in 6 Market research /

experience

8 Leads required each month 54 Step 6 x Step 7

The sales platform provides an indication of the number of leads required each month in

order to generate sufficient quotes and subsequent sales to meet the budget target.


Key concept: “Key Data Awareness”

• Know:

– Who buys

– Why they buy

– How they buy

– When they buy

– What they buy

• Collect and analyse key data on:

– Customer satisfaction

– Customer complaints

Key data awareness is having a clear understanding of what generates

your customer flow and how to retain them.

Key data awareness is a core component of a business generating

system.


Business Generating System

Source: Mazzarol (1999)

• Active networking to generate new business opportunities.

• Development of market segments with good long-term growth potential.

• A problem-seeking, problem-solving approach to sales management.

• Avoiding diversification strategies unless there are few alternatives.

• Sales management systems to generate new leads.

• Ensuring all employees are effective sales people.

• Planning for and allocating sufficient resources to new product or market development.


Business Generating System Worksheet

Source: Hall 1992

Step Item Measure Information Source

A Determine last year’s turnover $72,000 Profit & Loss statement

B Determine total number of orders last year 36 Sales reports

C Determine how may orders came from repeat business (existing

customers)

22 Customer database

D Calculate percentage of repeat business 61% Step C divided by Step B x 100

E Calculate average order size (A/B) $2,000 Step A divided by Step B

F Establish next year’s target turnover $100,000 Business Plan

G Calculate total number of orders required next year 50 Step F divided by Step E

H Determine number of repeat business expected (G x D) 31 Step G x Step D

I Calculate number of extra orders needed from new customers (G – H) 19 Step G less Step H

J Determine how may quotations sent out last year and how many won 33% Market research or experience

K Determine how may potential customers visited and how many asked for a

quote

17% Market research or experience

L Calculate how many extra quotations needed to be sent out to new

customers (I x ratio J)

6 Step I x Step J

M Calculate how many potential new customers need to be identified (L x

ratio K)

1 Step L x Step K


Marketing Metrics for Small Firms

Discussion

• Complete the Quick Quiz of Your Business Generation Systems

• What does this tell you about your current marketing practice?


ALT 2 /Diagnostic – Management

Information

• Using performance and market KPI to

guide management decision making.

• Getting regular information on variations

between actual and planned performance

levels.

• Getting regular information on sales and

performance trends.

• Getting regular data on wastage rates.

• Benchmarking wastage rates against

known industry averages.

• Benchmarking employee absenteeism

and turnover against known industry

averages.

How to obtain regular data on business trends and performance levels:


ALT 2/Diagnostic – Operations

• Linking marketing and operations

strategies together.

• Standardization of procedures to lower

cost of processes.

• Recognition and reward for process

improvement ideas from employees.

• Using sales people as an information

gathering resource.

• Gathering qualitative and quantitative data

from sales activities.

• Documentation of key operational

processes.

• Capacity planning in the physical facilities.

How to integrate marketing and sales with operations:


Market performance

• Sales and profit performance

• Sales and profit margin for each product group

• Sales and profit margin for each area or segment

• Sales by customer

– 80/20 ratio

– growth/decline

– potential

• Sales by channel of distribution

Tracking sales & profitability across product & market segments


Marketing KPIs

Source: DUBS 1992

Key Questions: Key Performance Indicators

What have been the sales and profit performances

of the business?

• Number of sales over past 3 years.

• Average gross profit over past 3 years.

• Average net profit over past 3 years.

What have been the sales and profit margins for

each product group?

• Gross profit contribution for each individual product

(express as a % of total sales).

• Average annual growth performance for each

product group.

What have been the sales and profit margins for

each customer or market segment?

• Gross profit contribution for each individual

customer or market segment (expressed as a % of

total sales).

• Average annual growth performance for each

customer or market segment.

Who are the leading customers? • Customer’s sales, profitability and growth.

• 80/20 ratio measures to rank customers.

What are the most important distribution channels?

(used where multiple channels exist)

• Gross profit contribution for each sales channel

(expressed as a % of total sales).

• Average annual growth performance for each sales

channel.


Marketing KPIs (continued)

Key Questions: Key Performance Indicators

How much does it cost in time and money to

attract a new customer?

• Promotional costs as a % of sales.

• Average time taken from initial customer

contact to sales closure.

How much does it cost to produce and deliver

the product?

• Production costs as a % of sales.

• Distribution costs as a % of sales.

How much does it cost to support each

customer?

• After sales service costs as a % of sales.

• 80/20 ratio measures to rank customers.

How long does it take to get the customer’s

payment?

• Debtor matrix listing each customer by days

payable (e.g. 30, 60, 90, 120 days).

How much capital expenditure is required to

support a dollar of sales?

• Capital expenditure costs as a % of sales.


Environmental awareness

• Key competitors

– Strengths & Weaknesses

• Key market changes

– Trends

– Opportunities & Threats

• How change is monitored

– Through Associations

– Exhibitions

– Market Research

– Media (e.g. newspapers)

Monitoring your Strategic Environment for Opportunities & Threats


Finding a competitive advantage

• Competitive Advantage is developed from the skills, resources and assts found within the firm.

• These are your Distinctive Competencies

• They should be:– VALUABLE – able to reduce costs or add

commercial value.

– RARE – not possessed by your competitors.

– DIFFICULT TO COPY – unable to be easily copied.

– NO STRATEGICALLY EQUIVALENT SUBSTITUTES – customers should not be able to find alternatives easily.

• Also of importance is how long it will take for a competitor match these competencies?

Developing a Unique Selling Proposition (USP)


ALT 2 /Diagnostic – Products

• Developing a product database to monitor

individual product contribution.

• Regularly monitoring and reporting on

product performance.

• Regular product/service reviews following

customer feedback.

• Using formal market research prior to the

launch of new products and services.

• Allocating budget for new product/service

development.

• Systematic branding of products and

services and company image

development.

• Active search for NPD opportunities.

• Collaboration in NPD.

How to monitor product performance and develop new products & services:


How do you retain existing customers?

• Faster, more reliable service

• Innovative product

• Longer opening hours

• Reputation and branding

• Strong after sales service

• Good location

• Image and personality

• Higher quality product or service

• Expertise and knowledge

The Process of Adding Value

Source: Naylor & Greco (2002)


Discussion

The Process of Adding Value

• Discuss what makes your business

special

• List the top things that might be done to

“Add Value” to your firm’s product or

service

• What can be done to market to your

“Top of Mind” 60%?

• What is the basis of your customer

delight?


Marketing Mix

Marketing Strategy

Products

Pricing

Promotion

PlacementPeople

Process

Physical Evidence

Customer

Needs & Wants

Customer

Price sensitivity

Communicate

& Educate

Customer

Convenience &

Control

Responsiveness

& Empathy

Reliability &

Assurance

Credence

Qualities


Service quality applied

Service Quality

People

EmpathyDo you understand my

needs & wants?

ResponsivenessDo you respond to me in a timely manner?

Process

ReliabilityDo you faithfully deliver on your

promises?

AssuranceCan you be trusted &

error free?

Physical Evidence

TangiblesWhat are the physical

facilities like?

Credence QualitiesDo your tangibles

engender a sense of confidence?

Key factors Key questionsKey service elements


Building block of increased business

Service QualityCustomer

SatisfactionPerceived Value

Customer Loyalty & Repeat Business

Positive Word of Mouth

Increased Business


Small Business Marketing


Discussion

Source: DUBS 1992

Small Business Marketing Video

• What were the key lessons from the

owners of Emma & Tom’s Juice in

relation to distribution of their product?

• What was their approach to selling the

product?

• How did they create and retain

customers?


ALT 2 – Marketing and Sales

Task Requirements:

1. Understand Your Customer Needs

• Interview 6 customers

• Ask the 3/3 quiz

2. Identify your USPs

3. Analyze your market position

4. Segment your market

5. Assess your market performance

6. Assess your market environment

7. Selling into the market

8. Developing a sales platform

9. Developing a business generation system

10. Employing the marketing mix

Key Documents

• Assessing your market performance

• A check list for developing a marketing plan

• Developing a sales platform

• 38 Steps to auditing your firm’s marketing materials

End of Presentation