6.2 Marketing

Marketing is concerned with pricing and promoting your products. The department is also responsible for sales forecasts.

6.2.1 Pricing Products

Price was discussed in 5.2.2 Price In The Fine Cut. To review, appeal falls to zero when prices go $5.00 above or below the expected price range. Price drives the product's contribution to profit margin. Dropping the price increases appeal but reduces profit per unit. Segment price ranges fall at a rate of $0.50 per year. For example, in Round 0 Traditional customers expected a price between $20.00 and $30.00. In Round 1, the Traditional price range will be $19.50-$29.50; Round 2, $19.00-$29.00, etc. This puts pressure on companies to improve their cost structures.

6.2.2 Promo and Sales Budgets

Promotion and Sales Budgets affect product appeal. See 5.3 Marketing Factors for more information.

Tip: The Courier's Segment Analyses report Accessibility and Awareness. See 3.2 Segment Analyses.

Promotion

Each product's Promo Budget determines its level of awareness. A product's awareness percentage reflects the number of customers who know about the product. 50% awareness indicates half of the potential customers know it exists. From one year to the next, a third of those who knew about a product forget about it.

Last Year's Awareness - (33% X Last Year's Awareness) = Starting Awareness

If a product ended last year with an awareness of 50%, this year it will start with an awareness of approximately 33%. This year's promotion budget would build from a starting awareness of 33%.

Starting Awareness + Additional Awareness From Figure 6.2 = New Awareness

Accessibility and Awareness numbers change if the Advanced Marketing Module is active (see 7.4 Advanced Marketing ). 

Figure 6.2 Increases in Promotion Budget have diminishing returns. The first $1,500,000 buys 36% awareness; Spending another $1,500,000 (for a total of $3,000,000) buys approximately 50%. The second $1,500,000 buys only 14% more awareness.

Figure 6.2 indicates a $1,500,000 promotion budget would add 36% to the starting awareness, for a total awareness of 69% (33% + 36% = 69%).

Figure 6.2 indicates a $3,000,000 budget would add 50% to the starting awareness, only 14% more than the $1,500,000 expenditure (33% + 50% = 83%). This is because further expenditures tend to reach customers who already know about the product. Once your product achieves 100% awareness, you can scale back the product's promotion budget to around $1,400,000. This will maintain 100% awareness year after year.

Tip: The Segment Analyses report awareness. See Figure 3.4.

Sales

Each product's Sales Budget contributes to segment accessibility. A segment's accessibility percentage is proportional to the number of customers who can easily purchase your products. Like awareness, if your sales budgets drop to zero, you lose one third of your accessibility each year. Unlike awareness, accessibility applies to the segment, not the product. If your product exits a segment, it leaves the old accessibility behind. When it enters a different segment, it inherits that segment's accessibility.

If you have two or more products that meet a segment's fine cut criteria, the sales budget for each product contributes to that segment's accessibility percentage. This has two important implications:

• The more products you have in the segment's fine cut,, the stronger your distribution channels, support systems, etc. This is because each product's sales budget contributes to the segment's accessibility.
• Achieving 100% accessibility is difficult. Companies must have at least two products in the segment's fine cut. Each product experiences diminishing returns at a sales budget of $3,000,000. However, diminishing returns for the overall segment is not reached until the budgets total $4,500,000 (for example, two products with sales budgets of $2,250,000 each). Once 100% accessibility is reached, you can scale back to around $3,300,000 to maintain 100%.

Accessibility and Awareness numbers change if the Advanced Marketing Module is active (see 7.4 Advanced Marketing ). 

Tip: Products with prices, MTBFs or positioning in the segment's rough cut do not contribute to the segment's accessibility.

Before and After the Sale

Think of awareness and accessibility as “before” and “after” the sale. The promo budget drives awareness, which persuades the customer to look at your product. The sales budget drives accessibility, which governs everything during and after the sale. The promo budget is spent on advertising and public relations. The sales budget is spent on distribution, order entry, sales budgets, customer service, etc. Awareness and accessibility go hand and hand in making the sale. The former is about encouraging the customer to choose your product, the latter about closing the deal via your sales people and distribution channels.

6.2.3 Sales Forecasting

Accurate sales forecasting is a key element to company success. Manufacturing too many units results in extra time/material costs and inventory carrying costs. Manufacturing too few units means stock outs and lost sales opportunities, which can cost even more. See 9 Forecasting.