The Greatest Cost, Namely Time!

Words To The Wise™ By David Lamont, Marketingsage, April 2003. Updated July 2010.

This is the full version of the abridged article featured in:

It’s easy to understand the value of time when it is applied to wages or a consultant’s time - you pay or earn a fixed price per hour, day, week, month or year. In this case, the value of time remains relatively constant. But when it comes to marketing a product the value of time is not constant. There are certain “windows of opportunity” which can significantly improve profitability and, if missed, can doom an otherwise good product to financial failure.

If the window of opportunity is clearly in the future you can wait, but there are many circumstances when accelerating sales results, even at a cost, is vital to the success of a product and the profitability of a business.

Speed matters when:

• Prices are expected to fall over time. Early sales are more valuable than late sales. For example, data storage products have experienced price declines of up to 60% per year and declines of 20% to 30% are not unusual.
  
  
• A few large customers dominate your market. For example, three companies, EMC, Veritas and IBM, accounted for about 65% of the $4.9 billion storage management software market in 2001 and only 10 companies accounted for 85% of the market. If you sell to or through customers who represent a significant share of the market a successful design-in not only translates to significant market share for you but it can also lock competing players out.

  Being the preferred supplier is also important. While large solution providers (like the OEMs mentioned) may use multiple vendors for a given product, it is common for 70% of their volume to go to the lead vendor, 25% to the 2nd-source vendor and the rest to miscellaneous others. Smaller OEMs and resellers might only use one source so they can concentrate their purchasing power and limit support and learning costs.
  

• There are competing technology standards. The de facto rule: "He who ships the most, wins." Leaders tend to get stronger while trailing companies get weaker because the market desires a standard.
  
  
• When switching costs are high. Technology integration, steep learning curves, brand familiarity, support policies and legacy installations all increase the cost of switching so the incumbent supplier has a distinct advantage over a later competitor.

  Switching costs also apply during the brand selection process. Introducing your product early may influence the requirements of the customer, effectively locking out future competitors. For example, if a government contract specifies a product feature that only you or a few others offer, you effectively reduce the number of competing bids that can win the business.

  Also, within certain industries the brand selection decisions are made within certain time windows. For example, new PC models are typically released in the fourth calendar quarter to meet seasonal demand. Component evaluation and testing can take 3 months, therefore potential vendors are selected in the 2nd quarter. Switching vendors during the evaluation cycle may cause a delay in shipping – a major setback. Therefore only those who were selling when the evaluation decision was made have a chance of winning the deal.

• The cost of carrying unsold product is high. This would include high unit costs and warehousing. There is also a high opportunity cost to storing components that fall in value quickly (e.g. processors and disk drives) and a cost if your distribution agreements allow stock rotation.
  
  
• The products or underlying technology become obsolete quickly. The shorter a product's life, the greater the cost of delay. If the product is expected to be available for just 12 months and you don’t tell anyone about it for the first month, you could have reduced your marketing ROI by 8% because you now only have 11 selling-months left. The loss is greater if margins fall over time.
  
  
• Competitor costs are lower and/or falling faster than yours. Companies with higher volume, or more products over which to amortize fixed costs, can achieve lower per unit costs and therefore make more margin or lower prices while maintaining margin. In the case of software, where most of the cost is associated with development and little is associated with each unit shipped, the company that recovers its development costs first can set the pace for pricing and margins.

When one of these circumstances exist the greatest influence on success is often speed and the highest cost is that of delay, not manpower. You can quantify the value of time to your business using the worksheet provided with this Words To The Wise article, 3 Straightforward Steps To Calculating ROI Potential And Making Better Numbers-Based Decisions! The link is below, but before you go there you should also understand how accelerating communications can accelerate sales.

Accelerating sales by accelerating communications

While many businesses recognize the cost of delay of product development and apply appropriate resources to engineering and manufacturing they fail to do the same for sales and marketing, or they apply the resources too late. This is a particular problem for emerging businesses who must build a new sales and marketing infrastructure before they can effectively reach the market.

Since a customer can’t buy what they don't know about and the sales process takes time, accelerating the communications process can accelerate sales and therefore generate substantial returns on investment.

The communications process impacts recruitment of resellers and technology partners as well as user sales. It involves salespeople talking with prospects and also promotions such as advertising, PR, mailers, seminars, etc.

There are four steps to every sale:

1. Awareness (attention). You can’t buy what you don’t know about.
2. Interest. Is the offering a likely fit for the need?
3. Desire (demand). Is the product desired over all alternatives?
4. Action (fulfilled demand). Can a sale be consummated (budget, product availability, etc.)?

In an ideal world, every prospect that became aware of your offering would buy it. You would have a 100% conversion rate from each buying stage to the next – everyone who was aware would be interested. Everyone who was interested would choose your offering over all alternatives and purchase your product.

In reality, the conversation rate from stage to stage is less than 100% resulting in more people who are aware of your offering than who eventually buy it. If just one of the conversion rates is zero, you sell nothing.

This funnel effect means that a certain volume of communications is required to meet a sales target. For example, a salesperson may talk to 100 prospects. Ten of the 100 prospects may evaluate the product and one might purchase. In this example, to close 50 sales by December you would need to talk to 5,000 prospects and work through 500 evaluations. If the evaluation and purchase process takes 3 months, as it typically does with large technology purchases, then all evaluations would need to be in the pipeline by late September.

Time-to-volume matters for sales communication as well as for product production. This applies to personal selling as well as mass promotions like advertising, PR, events, etc. Promotions support sales by generating awareness and sales leads at a lower cost than can be achieved by a sales team alone. Some promotions (e.g. PR) also add to the credibility of a product, making it easier to sell.

The effectiveness of the media matters, as does its schedule and cost. The following table shows some typical ways of generating awareness. The effective reach of each method per $100,000 spent is estimated.

The vast majority of messages are missed or forgotten so they must be sent frequently to make sure they are not only seen, but also remembered. A rule-of-thumb says it takes 21 messages to create 9 impressions to make 1 person aware. The sales process only starts when the prospect is aware of your offering, so it must be preceded by a significant effort to communicate.

To deliver frequent messages to an intended audience within a reasonable period of time usually requires the simultaneous use of several different communications channels. The use of different media (e.g. print adverts, direct mail, telemarketing) requires the use of different formats, tactics and skills. This effort requires people, budget and time. It is the time necessary for these marketing and sales activities that is frequently underestimated (even by marketers).

Some of the factors that influence time-to-volume for communications include:

• Sales days per year. There are only 250 sales days per year when you leave out weekends and U.S. holidays. There are even fewer sales days in Europe where there are more holidays. The numbers of days selling are fewer again when salespeople take vacations, sick leave and time off for training.
  
  
• Sales cycles. The more expensive or more complex the purchase, the longer customers take to make a decision. The sales cycle can slow down as budgets tighten. The sales cycle needs to be factored in to you generate leads early enough to meet your sales targets.

• Design, production and publication lead times. Almost all media have lead times. In some cases this can be days, but for most it is weeks and months - 4 to 6 weeks is a good rule of thumb. For example, the post office can take several weeks to deliver bulk mail. Before it can be mailed it must be printed and addressed. Before this, the message has to be decided and the artwork completed. Add several revisions and an approval cycle and a seemingly simple promotion gets complex.
  
  
• Fixed media schedules. Trade shows and most editorial calendars are scheduled in advance and you have to work to that schedule, ready or not.
  
  
• Lack of available expertise. Sometimes a sales or marketing person is expected to be expert (and experienced) in all areas when she is not. For example, many engineers understand the difference between hardware, software, firmware, mechanical and electrical engineering, but not the difference between face-to-face selling, telemarketing, marketing communications, channel marketing, product marketing and the creative arts of graphic design and copywriting. The resulting learning curve slows execution and mistakes can raise costs.
  
  There is also the difference in the time and skills required to design a marketing strategy and to execute and sustain it. The executive talent required to design a solid marketing strategy costs substantially more than the talent required to execute the day-to-day activities. However, the strategy phase is generally much shorter than the execution phase. Therefore, enlarging your internal marketing team may not result in a profitable ROI when the skills required are transitory. In this case outsourcing may be a more profitable choice.
  
  
• Recruitment, orientation and planning. Executive searches frequently take 6 months. The executive hires directors, who hire managers who hire staff. Once onboard some orientation and planning is advised and this also takes time. Executing without planning (the "fire-ready-aim" method) invariably results in wasted resources and lost time.

You can quantify the value of time to your business using the worksheet provided with this Words To The Wise article, 3 Straightforward Steps To Calculating ROI Potential And Making Better Numbers-Based Decisions!

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