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Small Business Management MGMT5601
Workshop 2 Part A: Creating
Customers
Professor Tim Mazzarol – UWA Business School
UWA Business School MBA Program [email protected] MGMTG5601
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• 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
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In this workshop we aim to:
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Action Learning Tasks and Small
Business Diagnostic
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Quick Quiz
Discussion
• Complete the Marketing Quick Quiz
• What does this tell you about your current marketing practice?
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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:
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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:
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Marketing Defined
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• “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
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A small business marketing framework
Source: DUBS 1992
Marketing Strategy
Customer Needs
Market Performance
Environmental Awareness
Selling
Marketing Mix
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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
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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
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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
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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
36% of workforce today
15% of workforce 2020
GE
NE
RA
TIO
N X Born 1965-1979
4.64 million
21% of population
44% of workforce today
36% of workforce 2020
GE
NE
RA
TIO
N Y Born 1980-1994
4.65 million
21% of population
18% of workforce today
35% of workforce 2020
GE
NE
RA
TIO
N Z Born 1995-2009
4.22 million
19% of population
0% of workforce today
12% of workforce 2020
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
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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
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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.
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Small Business Marketing
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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?
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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
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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
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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?
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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
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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)
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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.
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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.
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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.
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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
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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?
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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:
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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:
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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
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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.
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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.
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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
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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)
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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:
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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)
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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?
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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
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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
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Building block of increased business
Service QualityCustomer
SatisfactionPerceived Value
Customer Loyalty & Repeat Business
Positive Word of Mouth
Increased Business
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Small Business Marketing
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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?
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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
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End of Presentation