Strategy and Law #22

I’ve spent 30 years introducing new products into consumer and business-to-business markets. There is no difference in successful approaches whether you are entering a business to business or a consumer market. You must spend 75% of your advertising and promotion dollar on the end user and 25% on the trade.

Massey Ferguson is an example of my first experience with this phenomenon. In 1948 Massey Ferguson was the largest farm machinery company in the world, owning 48% of the global market. By 1978, when they were my client, they were nearly bankrupt. Their market share dropped to 3%.

Here’s what happened. They gave huge promotional money to their independent dealers with no strings attached. For example, the list price of a four-wheel drive tractor was $150,000. Massey gave their dealers a $75,000 dollar rebate to negotiate with their farmer customers, so the dealers could make a profit selling the tractor for as little as $80,000.

The dealers sold the tractors to their farmer customers for $150,000 then pocketed the $75,000 dollar rebate. They used these huge rebates to buy the local bank and half the land in the towns where their dealerships stood. They put nothing back into the Massey-Ferguson business that made them the wealthiest people in their respective towns. By 1978, a Massey Ferguson large combine or Tractor didn’t even fit in their service bays of many Massey dealerships because their dealerships hadn’t changed since 1948.

It was our agency recommendation to announce the $75,000 dollar rebates to the farmers and make the dealers deliver the rebates to the end user. Sales jumped 25%, but the dealers were angry because they lost their huge rebates. The sales saved Massey Ferguson from Bankruptcy until interest rates climbed to over 20% during the Carter Administration. Massey had acted 20 years too late in switching their customer focus from the middleman to the end user.

Fast forward to 2009, a new client of mine invented and patented a wood preservitive product. It protected wood better than the old carcinogenetic creosote, yet was safe enough to drink. The owners were finance men. They hated marketing and sales people. It offended them to have to pay for something they couldn’t understand. They, as many business owners in recent years have, succumbed to the dream that if “you build it they will come.” They spent 3 years selling and finally getting into all the best paint and hardware distributors in the country. They offered distributor incentives. The retail shelves were loaded with the product. The product worked. It protected the wood once applied for 25 years from water damage, chipping, cracking and termites. Termites and all other wood boring insects hated the stuff.
No consumer advertising resulted in NO consumer sales. Only 2% of the population will try something new if they have not seen the product advertised. Two percent of a new product category is nothing. In three years they were out of business. A completely unique, patented product that WORKED, failed in the market place without advertising support.
Ries and Trout, two working marketing guys wrote a book called the “The 22 immutable laws of marketing, nearly 20 years ago said beware of "Law Number 22-- a new product idea will not get off the ground unless it is adequately funded. The advertising must be aimed at the end user, not the trade. Ries and Trout spent 30 years in advertising and marketing business. They spent 30 years in the business before me. In the most recent 30 years, relearned this same truth.

In the business-to-business the same approach holds true. Sanofi Animal Health had a 20 year old chicken vaccine line of products that had 8 sales people calling on all the vet distribution points. No advertising, no branding. Our agency repackaged and re-branded the products as if they were brand new. We aimed our campaign at the vet end-user. Immediately following the advertising campaign, when the same sales people came to call on the distributors, vets started asking the sales people for Sanofi vaccines. Sales grew 250% for ten years until they were purchased by a Rhone-Meraux, the number one vaccine competitor at the time.

If you decide to enter the consumer grocery market with a product or the sanitation market or the retirement and nursing home market with a new product, you must brand product for the end user.

The average cost of entering a niche business-to-business market is at least $350,000 dollars in advertising and branding dollars per year, even for a smaller company. For this you must put multiple ads in the number one trade publication to the end user, use the web, and use social media to tell your story.

In the consumer market you can get by with $250,000 to $350,000 per market per quarter. You start in one market and become a regional player until you become a burr in a category giant, then they will purchase you.

Or you decide to grow market by market yourself. You start in a market that is not particularly visible to your competition so they don’t feel like crushing you. Remember, Wal-Mart started in small farm towns 10 years before they moved to the city to meet K-Mart head-on.

There are only four strategies in marketing:
•If you are the biggest player in a market you buy or crush your competitors—Microsoft.
•If you are the second biggest, you beat number one at one key marketing area—Avis—We try harder.
•If you are the third largest, you target number two—scope beat Lavoris out for number 2 spot next to Listerine by tasting good.
•If you are the fourth biggest or lower in a category you must be a guerrilla marketer picking a tight niche where you can be the dominator—Gatorade against Coke.

Pick your battle in the category where you can spend the money to compete.