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TWENTY-FIRST CENTURY MARKETING

© 2008 - Joel D. Johnson

The word "Marketing" is commonly believed to be the act of advertising and or selling a product or service.

The word “Marketing” is a descriptive word that encompasses all the necessary steps involved in the process of moving a product and or service to the end consumer.

The steps involved include:

·       Product or service idea design

·       Packaging

·       Market analysis

·       Competitive analysis

·       Pricing

·       Test marketing

·       Analyze preliminary results of test marketing

·       Duplicative distribution model

·       Business and marketing plans -who- what- where-when-why  

·       Product positioning

·       Advertising Media

a.    Newspapers

b.   Radio

c.    Television

d.   Magazines

e.    Trade papers

f.     PSA's

g.   Billboards

h.   Internet /World Wide Web

·       Public relations

·       Sales - "Nothing happens until something is sold."

·       Sales and Marketing follow-up and follow-through

·       Measuring results

·       Correcting course

The key words for marketing in the twenty-first century are:

TARGET & FOCUS

IN THE OLD DAYS -

·       You could virtually own customers, in a sense by offering in house charge accounts (this was before credit cards).

·       Customers had less flexibility in their ability to travel and were basically captured.

·       Tradition held that men earned the living and women were stay-at-home moms

·       Advertisers had few choices: newspaper, radio, billboards, magazines and flyers.

·       Retailers and service providers had a general store attitude; they tried to be something to everyone.

·       Major emphasis was placed seasons; spring, summer, fall and winter.

·       Vendors seldom sold more than one account in each city and where very picky about which business would represent their brands in that particular market.  That business would then become the exclusive representative of their brand.

·       Selling or distributing the right brands often meant the difference between just barely surviving and success.

·       There was genuine one-on-one customer service and those who failed to render this service failed.

·       The average business knew very little about marketing and had a tendency to use the “shotgun” or the “throw mud” approach, hoping some would stick.

AS ALWAYS THINGS CHANGE -

·       In house credit cards and bank cards.

·       Better transportation - multiple cars. Customers could shop anywhere they wanted- in town or out of town.

·       Broadened communications - TV – Radio - Newspaper - Internet, Intranet, and World Wide Web.

·       More time - fewer stay at home moms.

·       Strip shopping centers.

·       Shrinking independent business base.

·       Regional Malls.

·       Emergence of "Big Box Stores"

·       Discounters.

·       Self-Service “rack” stores.

·       Franchising.

·       More Targeted marketing.

AND NOW -

Numerous ways to buy:

·       Businesses issue their own credit cards. 

·       Banks issue credit cards.

·       Debit cards.

·       Online bill paying.

·       Electronic deposits.

·       Electronic checks and more.

·       It is the beginning of a cashless society.

·       Seventy-six percent of all purchases are now made with credit cards.

·       Banking as we have known it in the past, is disappearing.

·       We are no longer limited to bank availability.  There is one on every corner (almost).

·       We can bank and have funds available anywhere - at home, at work, on the road, on vacation, in or out of the country.

·       Banking has become much more competitive. 

·       The future may find bankers operating from business offices staffed by two to five employees, with NO store front, but one central clearing house.

The world is dramatically shrinking.  You can now order products online or by telephone and receive them, from most location, the very next day.  Very soon it may be same day.  This applies to individuals and business to business transactions.

Broadened communications – Broadband and wireless technology and Internet access is growing so fast that it is now possible to watch television, listen to radio, read all newspapers, receive and send telephone calls, messages, text, voice, video, and live visual presentations from anywhere in the world.

There may come a time, in the near future, when power to homes and businesses will be self-contained.  Major utilities will lose control of traditional forms of energy and we will no longer depend on third world oil.

Traditional forms of marketing are rapidly changing. 

·       Online advertising is increasing dramatically.

·       Current online users exceed 800 million worldwide.

·       World population now over 6.4 billion.

·       Every 8 seconds a new Internet user signs up.

·       By 2012 online businesses will generate 6 trillion in revenues.  Business to Business, wholesaler direct, retailer to customer, etc.

·       Every business, local or international needs a web presence.

·       Fewer stay at home moms.  Look for this to change.

·       Families are time squeezed.

·       Families are financially squeezed.

·       Strip shopping centers are expanding.

·       Regional Malls are becoming less important.

·       Big Box stores may have reached their max in USA and are being squeezed by online shopping, specialty retail and vendor direct, eliminating the retailer. 

·       Future growth is exploding in foreign countries, i.e. China, India and third world countries.

·       In addition to their normal function, big box stores will become local pickup and delivery locations for online shoppers.

·       More and more shoppers are looking for personalized service, unique product and individuality.  Major department stores, big box stores and large corporations, as a whole, have long since vacated this turf, leaving the door open for re-emerging independently owned businesses.

·       Major companies will have to re-define and learn the meaning of service all over again.

·       Home based business expanding dramatically. Four out of ten home owners operate some sort of business from home, part-time and full-time.

·       More than twenty-percent of all businesses now recognize the trend toward flex employment and allow employees to log in and work from home or wherever they desire.  No office space, utilities, or maintenance required equals less overhead and happier employees for participating companies.

·       Artificial borders are being eliminated.  Small business owners who have traditionally been locked out of international sales, now have an opportunity to operate on an equal playing field.  Governments are now trying to figure out how they can control the movement of products and services in a world that has no borders.  Should they?

·       Marketing activity is now a tightly targeted, extremely focused business requiring refocused thinking and ingenuity.  Business can no longer afford to throw mud and expect results.

·       The world’s winners will realize that their sole purpose for existence is to serve the customer and will offer genuine one-on-one customer service.

FOCUSED BUSINESS STRATEGY -

·         Deeper demographic analysis and understanding.

·         Fit company offerings to customer need by

      profiling and understanding his/her lifestyle and trends.

·       Fragmented customer profiles.

·       CABLINASIANS –A new marketing term for  mixed racial heritage - 1 in 16 under age 18 are from mixed racial families.

·       UNMARRIED PROFESSIONAL WOMEN IN THEIR 30S AND 40S - Highly educated; not weighted down by family responsibilities and with high disposable incomes.

·       EMPTY NESTERS - Boomers whose kids have moved out of the nest.

·       TWIXTERS - These twenty something’s who've been fussed over by their parents that can't deal with adulthood.  20% of this age group live with parents and are mostly supported by parents.

·       GENX -44 million Gen Xer’s born between 1965 and 1975.  Tech savvy and love to shop.

·       BOOMER GRANDPARENTS - Grandparents are becoming day-care providers to their grandchildren  and in some cases providing even more.  2003 - 900,000 children cared for by grandparents.

·       PROGRESSIVE PRIORITIZERS - Highly educated women leaving their jobs to have families, and then returning when they are ready.  Catch women between these mind sets.

·       BLENDED FAMILIES - Younger boomers are remarrying more than once, some three and four times and have kids in the mix.  There is a 90% chance a child is living with only one of the original parents.

·       SINGLE MOTHERS OF CHOICE - 2002- 12% of births were to unmarried women ages 30 to 44.  Some are choosing artificial incemination as a preference.

THE FINALNOTE-

In the final analysis we need to understand that business is no longer business as usual.  It is a world of specialization with specifically targeted product and customers and action steps truly focused on a unique market that has been specifically chosen because that is where your company can best serve the purpose for your being, your chosen customers.

“Marketing is not a new ad campaign or this month’s promotion.  Marketing has to be all-pervasive, part of everyone’s job description, from the receptionists to the board of directors.  Its job is neither to fool the customer nor to falsify the company’s image.  It is to integrate the customer into the design of the product and services and to design a systematic process for interaction that will create substance in the relationship.”

___Regis McKenna,

Author of Total Access

CASHING IN ON INNOVATIVE IDEAS

HOW TO INCREASE YOUR BOTTOM LINE BY DRAMATICALLY

WITHOUT INCREASING SALES, RAISING PRICES OR

REDUCING NORMAL OPERATING EXPENSES

© 2008 – Joel D. Johnson

The following article is for the purpose of planning and should not be misunderstood as legal or financial advice.  For legal and financial advice it is recommended that the reader contact his/her attorney and or accountant.

Starting with a stupid question may not be the best way to begin, but it may be the exact thing to do to make my point.  If you could invest $20,000 and get back $55,000 in 12 months, would you invest?  Of course you would.  You’ll never match that in the stock market or in your savings account, that’s for sure.

If you are currently in business for yourself you are in the unique position to do that and more, year after year, after year, assuming of course that you are managing you working capital.

For those that do not know or fully understand, working capital is:

1. Cash on Hand- Money you have in you checking accounts, saving, investments, and petty cash.
2. Accounts Receivable – Cash your customer owe you.
3. Inventory – Merchandise or material on hand, in shipment and in progress (not yet invoiced)

These three items represent cash a business has available to operate its business.  If you have a small bank balance, it may be because you have too much tied up in accounts receivable or inventory or both.  It could be that you lack sufficient sales or it could be that you are miss-figuring your gross margins and your sales are not creating enough gross income to pay bills; therefore, you are always having to borrow from Peter to pay Paul, often leaving you with no net profit and very little cash to finance new assets and growth.  You should always have at least one dollar in current assets for each dollar you owe in current liabilities.

By understanding your customers business and developing strong partnering relationships with credit worthy customers you can create a balanced inventory program, sometime known as “Just-in-time” inventory controls, which allows for “ditto” orders (working agreement to ship a constant supply of basic product to your customer based on their “just-in-time” requirements), which allows for better forecasting of working capital and cash flow for the customers business and your own.

If you own or manage a service business and do not manage inventory, the total of your cash-on-hand and accounts receivable represent your working capital.  The more times you invest those dollars and create healthy gross margins the larger your return on those investments will be.

If a business owner invests a dollar in inventory the vendor now has the dollar and the business now has the vendors’ things.  Once that transaction is complete, it often hard for some to understand that those things continues to represent dollars, plus desired “Mark-up.” Sales–Cost-of-goods= Gross Margin, better known as gross profit.  Gross profit/sales = Gross Margin as a percent of sales.), assuming a sale has been made.  Of course we all know that nothing happens until something is sold.

“Mark-on” and “Mark-up” are not the same.  Some manager’s think they are getting true “markup” when they add a dollar amount to their COG (materials, labor and freight).  Say you want a 40% “Mark-up” (Gross Profit/sales) so their calculation goes something like this:  Cost $1.00 +.40 (40% of cost) =$1.40 selling price. This is the add-on or “Mark-on” formula.  But when they look at their Profit & Loss Statement, they discover that they actually received a 28.6% “Mark-up,” as a percentage of sales (Gross Margin/Sales) and they can’t figure out what happened. It is important to understand these formulas in order to follow the logic in this article.

Net profit and cash flow are not the same either.  Net profit represents the earnings on business transactions, before taxes and debt service.

Cash flow represents the total inflows; cash received from customers, borrowing and other unique deposits) and outflows represent amounts paid to vendors, employees, general operating expenses, capital investments, taxes, interest, principle loan payments, etc. and shows cash left after all transactions.  A business should never have a negative bank balance.  I point this out only because some people think “net profit” and “cash flow are they same.  It is important to have a good understanding here as well.

Now, back to our return on capital invested in inventory.

For discussion sake, let’s assume that we have projected sales of $100,000 for the coming 12 months.  Let’s also assume that we want a 40% average gross margin and we are budgeting 33% of net sales for operation expenses, including interest and depreciation.  In addition, we would like to achieve a 3 times annual turn rate on inventory.  In other words, we plan to sell completely out of inventory at least 3 times during the fiscal year (average inventory at retail, after discounts & markdowns/total sales).  And, for the sake of discussion, we have determined that we would need $33,000 in net retail inventory value or an investment of $20,000 to achieve this goal.

We go to market and invest the $20,000 in inventory that we believe our customer will want to purchase from us and assuming all goes as planned we will need to re-invest that $20,000 at least 3 times during the fiscal year to achieve our sales goal of $100,000 in net sales.

We invest the $20,000 (our cash) and achieve $33,333 in net sales.  We earn $13,333 gross profit and we got our original invest of $20,000 back.  What do you suppose would be the wise thing to do with that $20,000?  You guessed it!  We re-invest our $20,000 again and we earn another $13,333.  We now have earned $26,666 gross profit dollars on a $20,000 investment and we still have our original $20,000.  What do you suppose would be the wise thing to do this time?  Right!  RE-INVEST again!  Earn another $13,333!  Finally, at the end of the year, we have earned an accumulated $39,999 gross profit on our $20,000 and we still have our original capital left.  That represents a return on investment of 80% or an annual average of 47% in new capital after expenses.  Not bad!  What would happen if you could do that 4 times, maybe even 5 times or more?  Having large inventories on hand does not necessarily translate into larger sales or faster growth, as you know.

In addition to increasing return on inventory investments, what would happen if you gradually increased gross margins by 2% and still remain competitive?  At the same time, what would happen if you reduced your collection days from an average of 45 to 35?  What would happen if you reduced unnecessary spending and saved 2-3% of total net sales?  What could happen if your customers signed an agreement with you that would allow you to ship weekly replenishment of basic items (ditto order) year round? What if you could arrange the same thing with your vendors that would allow you to carry only the amount of inventory necessary to meet demand, all within the planned inventory investment?  How much would you save in man hours, inventory shortages, etc.?  Could you reduce your overall expenses with this plan? 

What if you had 1.5 – 2.00 dollars or more available to pay each dollar owed in current liabilities?  Would you look better?  Would you be a hero?  Could you sleep better?  You bet you would!

The facts are in!  According to SBA most businesses fail due to lack of planning, lack of working capital, and lack of knowledge.  Ninety-five percent of all new businesses that fail do so within the first five years.  Eighty-percent of those that call it quits do so within the first two years.  For some, gaining the knowledge required for managing and operating a business might be a very smart investment.

Look over the following table and compare your return on dollars invested in inventory.  You might be surprised.  You might be doing better.

EXAMPLE OF INVENTORY TURN & ROI ON INVENTORY INVESTMENT

If a business is not growing it is dying.  No doubt you’ve heard this before.  That not only means healthy sales growth is important, it also means healthy management of the revenue generated by the business is equally important.  Failure to recognize this fact could put a business in the junk pile of failures.  One of the major reasons for business failure is the lack of ability to manage revenues.

This might seem like a weird statement, to some, but do you know that you can grow broke?  When you are growing at a very fast pass and lack the understanding that new growth requires new capital investments that often can not be paid for from insufficient net income and cash flow.  For this reason planning is of vital importance.  Getting a handle on the pulse of the business and knowing how to control growth within the businesses ability to provide working capital, over a predetermined period of time, is one of the major keys to potential success. 

To reach your goals your business MUST have qualified talented people available to solve the every day challenges you are sure to face. You will only be as successful as the people you surround yourself with.  If you want to succeed beyond your imagination, surround yourself with people smarter than yourself.