The ROI of Being Market-Driven

By Phil Myers
October 20, 2010

Gain strategic visibility for the ROI of being market-driven. Read the Four Rules of ROI Leaders that speak the language of your buyer - the CEO.

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OI leaders get there faster by optimizing the full launch process:

  • In our industry, most vendors assume it takes 5 to 8 marketing impressions with a prospective customer to establish product awareness. 5 to 8? Doesn’t that sound rather high for an educated, fairly technical audience? We found that market-driven collateral and tools that focus on solving market problems for prospective customers generate leads in no more than 2 to 3 “touches,” improving the ROI by over 100%.
  • Market-driven organizations take an entirely different approach to channel training. The focus of the training is on how to sell the product, not on making the salespeople experts on the product. Salespeople are not detailed oriented. Never were, never will be. Market-driven sales training programs should teach the tools, processes, and the important information about the buyers and how they buy—not specifics about the products.

To build market-driven sales and marketing programs, your goal should be that for every buyer message and every marketing deliverable, the targeted customer exclaims, “Wow, these guys really understand my problems!”

A related, but neglected, item is the additional support staff allocated to most new products to assist the launch. If your company does not have clarity about what problems you solve for your market and how the product solves those problems, your prospects will be confused. This contributes to longer sales cycles and potential lost deals which are easily measurable. It also contributes to more folks being applied to assisting the selling process to avoid these losses. Developing a repeatable sales process that scales without extra support comes much faster from a market-driven product.

How do we measure and translate that value into an ROI? First of all, clearly define your target audience for each deliverable—what is the market segment(s), who is the buyer persona(s), and what are their problems? What do they care about? How are they measured? What are the alternatives to buying your product? Second, audit each of your primary marketing deliverables and eliminate any extraneous information that is not 100% focused on the market and persona and their problems. If you can’t entirely eliminate information about you or your technology, put it in backup or in the lower-level details. By implementing only these two simple steps, companies can improve the ROI by up to 50%, eliminating entire campaigns and significantly increasing sales productivity.

SIMPLE MEASURE: Multiply the cost of running a marketing campaign for one of your products by two and add it as an avoided cost. Take your revenue assumption for full productivity in the channel and multiply by the number of months beyond three that it takes you to achieve it. The difference between this number and actual results is lost revenue. Add these two figures together.

Rule #3

Raise your customer satisfaction levels to best-in-class

Time-to-value is the third measurement of an ROI leader. According to a 1993 Harvard Business Review article, “A ‘very satisfied’ customer is almost 6 times more likely to be loyal to repurchase and/or to recommend your product than a customer that is ‘just satisfied.’” And from Leading on the Edge of Chaos by Emmett C. Murphy and Mark A. Murphy:

  1. Acquiring new customers can cost five times more than satisfying and retaining current customers
  2. A 2% increase in customer retention has the same effect on profits as cutting costs by 10%
  3. The average company loses 10% of its customers each year
  4. A 5% reduction in customer defection rate can increase profits by 25-125%, depending on the industry
  5. The customer profitability rate tends to increase over the life of a retained customer

Best-in-class companies garner customer satisfaction rates, renewal rates and achieve Net Promoter Scores in the 50-80% range. Those that are not, generate scores in the
5-20% range.[4] What are the impacts of creating these levels of customer satisfaction? What CEOs have come to realize is that this is their number one measurement for success. For some very virtuous and pragmatic reasons—costs decrease and revenues increase in direct proportion.

How can being market-driven impact customer satisfaction, thereby creating very satisfied customers? A formal customer relations program is the first step. The best programs include both electronic and personal contact management, early access to products, “loyalty” programs such as preferred licensing terms, “named” support staff, escalation paths for resolving conflicts, and customer advisory councils/conferences. The second step is a professional and responsive support organization, with an incentive to sell to and retain current customers as well as acquire new ones.

But, no program is as valuable as this one—providing solutions to real market problems. At the end of the day, satisfaction isn’t about how nice you are, how well you provide support, or how much the customer believes in your mission—it’s about whether the solution you provide impacts your customer’s ability to improve their own execution today. You don’t pay attention to anything else, so why should your customer?

SIMPLE MEASURE: Take the difference between your current customer satisfaction rating and 90% and divide it by two. Multiply the actual number by 10% of your cost structure. Add it as an avoided cost.

Rule #4

Improve retention and productivity of the workforce

Time-to-profit is the fourth measurement of an ROI leader. Ask any technology industry CFO and they will tell you that the number one contributing variable to the bottom line is people costs. Making your workforce more productive and retaining key employees is an often overlooked part of the ROI equation for product managers.

A Human Resource methodology called “TopGrading” estimates the cost of non-performance (as defined by a new hire that didn’t work out or an employee in place not doing their job) is estimated at 24 times an employee’s annual compensation.[5] That is, a $100,000 employee that doesn’t work out costs the company $2.4 million when you factor in hiring, training, expenses associated with poor performance, rehire costs, opportunity cost and delays.

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About the Authors

  • Phil Myers

    Pragmatic Marketing, Inc. has continuously delivered thought leadership in technology product management and marketing since it was founded in 1993.Today, we provide training and present at industry events around the world, conduct the industry’s largest annual survey and produce respected publications that are read by more than 100,000 product management and marketing professionals. Our thought-leadership portfolio includes the Pragmatic Marketing Framework, e-books, blogs, webinars, podcasts, newsletters, The Pragmatic Marketer magazine and the bestseller “Tuned In.”

    To learn more about our courses and join the growing international community of more than 80,000 product management and marketing professionals trained by Pragmatic Marketing, please click here.


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