Does your business offer a purchase incentive as a marketing tactic? How much good does it do for your business… really? Does your fulfillment deliver the goods?

I’m a geezer who remembers mailing in breakfast cereal box tops for plastic Moon Rocket kits. These were great marketing tools in the Sputnik age. However, sometimes those Moon Rockets never arrived. And boy, was I one angry little kid! I quit eating that brand of cereal… that showed them!

Incentive fulfillment is now an industry in its own right, with good and bad offers and good and bad businesses. We all know the good examples, such as the rebate checks that arrive in three weeks instead of eight weeks. They leave us with a good impression of the offering company.

When fulfillment is slipshod, or poorly delivered, or misrepresented it is the offering company that loses its good reputation, not the fulfillment company. For example, my wife recently decided to try out a different brand of home product because it offered a $15 rebate. However, when the rebate arrived, it was not a check but a voucher for credits at a third party redeem-for-product website. What the….!?!? Grrrrrrrr!

None of the products offered were of any interest to us so she passed the credits along to her sister. Unfortunately, the third party website company deducted credits for transfer, and deducted credits for checking the credit balance, etc., until there were not enough credits left to redeem a pack of facial tissues (to say nothing of the shipping and handling).

And who is getting the bad rap for this scam? Not the fulfillment company, not the people who sold this system, and not the third party website that we would never have visited (and never will again). Nope. All the frustration and ill will that was generated by this thoroughly unsatisfactory purchase incentive falls squarely on the product company. The incentive may have gotten them one sale from us, but they’ll not get another.

So this marketing tactic backfired. And any good impressions chalked up by other marketing expenditures by the product company were wiped clean off the board. Money wasted.

If you are going to offer a purchase incentive, decide if you really want to offer something of value, and whether your goal is to attract repeat customers instead of simply a bunch of one-time sales. Then, (I hope you are choosing the high ground) find a reputable fulfillment company with a good track record, and a commitment to serving you and your customers well.

Steve Lange
Palo Alto Software

Lot size

How many “units” does the end user want per transaction? A household may purchase one personal computer per transaction. The customer service department of Eddie Bauer may purchase 20 personal computers at a time. Channel members may have systems designed to address the needs of both.

Waiting time

The speed of providing faster service may be magnified through the systems that channel members offer.

Location

Getting the product in the right place and time is important. Arranging for “authorized dealerships” throughout a wide geographic area allows products to be conveniently and affordably accessible to customers.

Product variety

The ability to purchase other products from a retail store may enhance the sales and/or margins of all products offered by attracting customers who appreciate the variety of products.

Service support

Channel members may be better equipped to offer add-on services. This may include advertising, credit, delivery, installation, and repair to enhance the overall value provided to the customer.

The first step is to select intermediaries that complement the product or service. These channel members should have the goal of offering attractive attributes to the end user. Channel members also need to be motivated to continue to provide value. Motivation typically exists in the form of profitability through stimulating sales. The overall goal is to build long-term and supportive relationships among channel members that are successful for all involved.

Channel Conflict

Marketing channels inherently have the potential for conflict. However, with proper planning it can be minimized or avoided.
Of all the factors, the most common source of channel conflict relates to pricing. It is important that the producer creates the foundation for a pricing structure where each member is able to make a profit from the value they bring to the marketing channel process. Each member’s price must reflect his or her role within the channel. For example, if a retailer is able to purchase directly from the producer at a cost equal to or less than what they buy from their distributor, channel conflict will occur.

Other sources of channel conflict may result from goal incompatibility, poorly defined roles and rights, perceptual differences, and interdependent relationships. All of these factors must be taken into consideration, addressed when necessary, and “managed” whenever possible.

The member that has the greatest control–and that may not be the producer–is in the best position to influence the channel.

Roles and Functions

Channel marketing has its own set of terminology regarding each of the players. It often varies by industry. Here is a list of some of the most common terms:

Extending Your Reach

Many producers of products and services do not sell directly to their end users. They use a marketing channel. In its most simplistic form, a marketing channel performs the work of moving goods from producers to consumers.

A marketing channel includes one or more marketing intermediaries who perform a variety of functions. Each channel member:

• Provides value
• Performs a function
• Expects an economic return

Channel marketing most often relates to the sale of products. However, it is not limited to the distribution of physical goods. Providers of services and ideas also benefit from channel marketing. For example, banks and credit unions depend on a network of ATMs to offer their services. Health and medical organizations depend on a network of providers to offer their services. Financial management and insurance organizations disseminate information through systems provided by other vendors. In the cases above, channel marketing offers better services at costs lower than offerings without the assistance of channel members.

Organizations can achieve differentiation through their distribution channels. Each of these channels may offer different coverage, expertise, and performance. They may also realize economies of scale that channels of distribution often offer.

Marketing channel decisions are among the most critical decisions facing an organization. The chosen channels intimately affect all other marketing decisions. The organization’s pricing depends on whether it uses mass merchandisers or high-quality boutiques. The firm’s sales force and advertising decisions depend on how much training and motivation the dealers need.

Channel Members Provide Value

Channel marketing intermediaries exist because they offer value in making goods and services more available and accessible to the targeted markets.

Channel intermediaries offer contacts, experience, specialization, and economies of scale to organizations that cannot offer these attributes on their own. Marketing channels allow producers to realize the benefits that only larger organizations may be able to support.

Each channel intermediary provides value in the form of:

Information: Collect and disseminate marketing information about potential and current customers, competitors, and other aspects of the marketing process.

Promotion: Develop and share marketing communications designed to inform and attract customers.

Negotiation: Reach final agreement on the price and other terms of the transaction.

Funding: Acquire access to funds to finance inventories at different levels of the marketing channel.

Risk taking: Take on risks associated with performing the functions of the channel. Obsolete or damaged inventory, bad debt, and slow payment are a few examples of this risk.

Physical possession: Store and move products from raw materials to the final customers.

Payment options: The buyers’ payment of their bills to the sellers through banks and other financial institutions.

Title: Transfer title of ownership from one organization or person to another.

In a functional sense, these are some examples of the types of resources that marketing channels offer. Each adds value to the promotion, the transaction, or the services associated with the purchase:

• Accounting services
• Advertising planning assistance
• Catalog service
• Co-op advertising programs
• Consumer advertising
• Data processing programs and systems
• Dealer shows and events
• Drop-ship programs
• Employee training
• Financing
• Forms and printing assistance
• Inventory control systems
• Insurance programs
• Management consultation services
• Merchandising assistance
• Ordering and processing systems
• Point-of-sale identification
• Private-label merchandise
• Store planning and layout

Through their acquired expertise and economies of scale, channel members offer these activities more efficiently than organizations, particularly smaller ones, could provide on their own. The marketing channel allows the producer and the channel members to do what they each do best in higher volumes.

Product bundling is combining two or more products or services together, creating differentiation, greater value and therefore enhancing the offering to the customer. Bundling is based on the idea that consumers value the grouped package more than the individual items.

Bundling can enhance an organization’s offering mix while minimizing costs. This is attractive to consumers who will benefit from a single, value-oriented purchase of complementary offerings. Bundling is attractive to producers by increasing efficiencies, such as reducing marketing and distribution costs. It can also encourage customers to look to one single source to offer several solutions.

Product bundling may also incorporate products from multiple producers. For example, Palo Alto Software may include one of their business planning products with an accounting software package, or participate in a “small business bundle” through a major computer manufacturer whose customers would have the opportunity to purchase with their new PC. In these situations, bundles may cost effectively open doors to new marketing channels.

If the product combination is right, the decision to bundle often involves taking these four variables into consideration:

1. Volume: Bundling typically increases unit sales volume.

2. Margins: Bundling can reduce margins.

3. Exposure: Bundling may offer new channel opportunities or exposure to new potential customers.

4. Risk: If executed incorrectly, bundling may cannibalize more profitable sales, resulting in lower contribution margins and potential channel conflict.

These factors must be considered in terms of the revenue opportunity and exposure potential bundles offer. Determine if bundling has a place in your marketing plan and how it will provide value for your customer and your organization.

It is important to be selective, but with the right bundle, everyone can win.

Most physical products require packaging. This involves the design of a box or wrapper that contains the product. In addition to the function it performs—to hold and protect the product—it is also a powerful selling tool.

Products can have multiple packages. This includes the container itself, such as a bottle, can, or case. This is often enclosed in a box for protection purposes. The product may also have a case or larger container to ship multiple products within one box. Each of these packages, particularly those that the consumers see before their purchase, offers the opportunity to communicate information to consumers at a critical point in their decision making process.

Packaging offers the opportunity to:

Protect the Product

• Reduce costs due to breakage.
• Protect the product in transit: for example breakable or perishable items such as perfume, light bulbs or food.
• Protect the product on the shelf: from theft, damage or tampering (i.e., pharmaceuticals or CDs).

Promote the Product

• Complement other promotional activities.
• Communicate information: core benefits, “why to buy” testimonials, Internet addresses and toll-free telephone numbers, for products like tools or software.
• Display the product: attach to display hardware or stand upright as with gloves or cell phones.

Provide Additional Value and Differentiation

• To provide increased purchase justification.
• Dispense the product: ease of use or the size of recommended portions, as with spray paint, hair care products, etc.
• Preserve the product: seal and reseal perishables. Examples are food products and cleaning supplies.
• Offer consumer safety: warn of hazards due to improper use of dangerous substances (such as the information on cigarette packaging) or design considerations (such as not standing on the top step of a ladder).
• Serve other uses: containers that can be used for other after-purchase purposes. Film canisters might carry a couple days’ vitamins or aspirin in a backpack. A current foldable bicycle ships and travels in a suitcase, which then converts into a trailer to be pulled behind the bike.

Retail products purchased on an impulsive basis depend heavily on packaging to communicate information and encourage a buy decision. Music CDs, perfume, and software are examples of this. An increasing number of products are purchased without the assistance from a store employee, magnifying the opportunity and impact of the package.

Well-designed packages offer a promotional tool and convenience value to the user. This can result in another form of product differentiation. Packaging can offer after-purchase value to store the product, or be used for other uses. Razors that are packaged in travel cases are an example of this.

An offering encompasses the benefits or satisfaction provided to your target markets, tangible and intangible. To successfully market your product, you must understand its benefits from the buyer’s perspective. This approach allows you to think beyond the tangible “product” entity and consider what the consumer is actually buying and their reasoning behind that purchase.

Your offering includes a tangible product or service, plus any related services, such as installation, warranties, guarantees, and packaging. It also includes intangible benefits, from peace of mind, to validating an identity, to showing off to the neighbors.

Focusing on the offering, rather than on the actual product or service itself, can be valuable for analyzing consumers’ alternatives, to better identify unmet needs and wants of your target markets, and to enhance development of new products or services.

In a larger sense, an organization’s offerings are a part of who they are as a business. Your marketing plan should address what types of customers you seek, what the buyers need, and how your offerings meet their needs. It should also describe how your offering is communicated and what value it holds for the consumer.

Offering Mix

Most organizations sell more than one product. A multi-product approach often adds value, leverages economies of scale and expertise, and increases revenue generation potential. Banks offer dozens of services. Most retail stores offer hundreds of products to meet the breadth of needs of their customers. General Electric has over 200,000 products. The combined offerings of an organization is known as their offering mix.

This offering mix can be classified according to the width, length, depth, and consistency of the products. These four dimensions are the tools for developing the company’s marketing strategy and deciding which product line to grow, maintain, harvest, or divest. Strong products should be grown or maintained. Weak or unprofitable lines should be sold or discontinued.

Four basic factors are critical in the decision to manage individual product lines.

• Consumer demand
• Cost to produce
• Gross margin
• Total sales volume

When change occurs in any of these areas, you should analyze the product line and decide how many resources should be invested.

The Product Manager

The product manager often stands between the product development team and the marketing team, bringing the concepts together throughout the implementation process. Some organizations have the resources and the need to have a position dedicated to manage the one or more product lines. The role of the product manager is to develop product plans, implement them, monitor the results, and take corrective action when necessary.

The product manager’s goal is to intimately know the target markets the product or products serve and understand how these markets perceive the product. There are critical customer questions the product manger must answer:

• What needs are our customers satisfying when they buy our product?
• Why do they buy it?
• What do they consider to be viable product alternatives or substitutes?
• How do our products compare to those other potential choices?

Tasks to Achieve the Goal

The product manager’s tasks most often can be described by these activities:

1. Develop an enduring competitive strategy.
2. Prepare and maintain a product marketing plan with a sales forecast.
3. Work with advertising and merchandising agencies to develop copy, programs and campaigns.
4. Stimulate an understanding of the product and support among the sales force and distributors.
5. Gather product performance data from customers, resellers, dealers and others in the sales channel regarding attitudes, new problems, and opportunities.
6. Initiate product improvement to meet changing market needs.

The focus and specialization a product manager offers an organization can prove to be a valuable resource in making certain that the return on investment for each product is optimized.

Giving away the farm
Many catalogs will ask for a multitude of discounts and concessions before they even place one order. You give them a set price for your product. But they insist on a lower price. They expect you to pay freight. They want an “advertising allowance.” They ask for a volume discount, a catalog allowance, and a photography fee. The requests for concessions go on and on. But beware of this game. If a catalog truly likes your product, they will usually pick it up without requiring a ton of concessions.

Being stung by mistakes
Review a catalog’s rules and shipping requirements closely. Mislabeling your master cartons, shipping late, or failure to follow any of their vendor requirements could cost you. Penalties are typically enforced through deductions off invoices. A few deductions here, a few there, and you can kiss your profit goodbye.

Falling behind with orders
The only thing worst than having a product no one wants to buy, is having one that so many people want you can’t keep up with the deluge of orders. If you’ve never had insomnia, this scenario is guaranteed to cause it. When thinking about your production needs, think as optimistically as possible. Make sure you’re capable of handling production if the catalogs are successful with your item. And always have backup suppliers lined up — just in case.

Products that boomerang
Returns from catalogs are an inevitable part of the equation when figuring out your profit. If you have a good, well-built product that delivers on its promises, you have little to worry about. However, high returns are often the first warning sign that there are problems with your product. It breaks easily when shipped, customers think it’s overpriced, or assembly instructions are confusing. Any number of issues can be red-flagged by high returns.

Placing your eggs in one basket
Many catalogs ask for an “exclusive.” This agreement guarantees that the catalog will be the only one carrying your product for the length of the exclusive. Generally this is not a good deal for your company. Naturally an exclusive with one company locks you out of the rest of the market. If you do grant an exclusive, keep it as short as possible. Six months is plenty of time for an exclusive.

Doing business with deadbeats
Let’s face it, the main reason you do business with a catalog is so they will pay you for your product. How frustrating it is then when they don’t live up to their end of the deal. And it happens. Like all businesses that are strapped for cash, when a catalog is experiencing lean times, they will delay payment to their vendors. So keep a close eye on when an invoice is due, and don’t let them slide too far past. Any invoice more than a month past due could indicate trouble. Your best recourse is to hold up shipments to that catalog until you get paid. You can even ask for payment up front on new orders.

Originally published on Bplans.com.

Studying product failures allows those in the planning and implementation process to learn from the mistakes of other product and brand failures. Each product failure can be investigated from the perspective of what, if anything, might have been done differently to produce and market a successful product rather than one that failed. The ability to identify key signs in the product development process can be critical. If the product should make it this far, assessing risk before the product is marketed can save an organization’s budget, and avoid the intangible costs of exposing their failure to the market.

Defining product and brand failures
A product is a failure when its presence in the market leads to:

• The withdrawal of the product from the market for any reason;
• The inability of a product to realize the required market share to sustain its presence in the market;
• The inability of a product to achieve the anticipated life cycle as defined by the organization due to any reason; or,
• The ultimate failure of a product to achieve profitability.

Failures are not necessarily the result of substandard engineering, design or marketing. Based on critic’s definitions, there are hundreds of “bad” movies that have reached “cult status” and financial success while many “good” movies have been box office bombs. Other premier products fail because of competitive actions. Sony’s Beta format was a clearly superior product to VHS, but their decision to not enable the format to be standardized negatively impacted distribution and availability, which resulted in a product failure. The “Tucker” was a superior vehicle compared to what was on the market at the time. This failure was due to General Motors burying the fledgling organization in the courts to eliminate a future competitor with a well-designed product posing a potential threat to their market share. Apple has experienced a series of product failures, with consistent repetition as they continue to fight for market share.

Product failures are not necessarily financial failures, although bankruptcy may be the final result. Many financially successful products were later found to pose health and safety risks. These products were financial and market share successes:

• Asbestos-based building materials now recognized as a carcinogenic—Insulation, floor tile and “popcorn” ceiling materials produced by a number of manufacturers.
• Baby formula that provided insufficient nutrients for infants resulting in retardation—Nestle’s.
• The diet medication cocktail of Pondimin and Redux called “Fen Phen” that resulted in heart value complications—American Home Products (http://www.settlementdietdrugs.com/).

What successful products may be next? Frequent and high dosages of Advil are suspected to correlate with liver damage. Extended use of electric blankets are suspected by some to increase the chance of cancer. The over-the-counter availability and high use of Sudafed is feared by some physicians and is currently under review by the U.S. Food and Drug Administration.

Product failures and the product life cycle
Most products experience some form of the product life cycle where they create that familiar—or a variant—form of the product life cycle based on time and sales volume or revenue. Most products experience the recognized life cycle stages including:

1. Introduction
2. Growth
3. Maturity (or saturation)
4. Decline

In some cases, product categories seem to be continuously in demand, while other products never find their niche. These products lack the recognized product life cycle curve.

Failure, fad, fashion or style?
It is important to distinguish a product failure from a product fad, style or a fashion cycle. The most radical product life cycle is that of a fad. Fads have a naturally short life cycle and in fact, are often predicted to experience rapid gain and rapid loss over a short period of time—a few years, months, or even weeks with online fads. One music critic expected “The Bay City Rollers” to rival the Beatles. Do you know who they are? And the pet rock lasted longer than it should have, making millions for its founders.

A “fashion” is what describes the accepted emulation of trends in several areas, such as clothing and home furnishings. The product life cycle of a “style” also appears in clothing as well as art, architecture, cars and other esthetic-based products. The “end” of these product life cycles does not denote failures, but marks the conclusion of an expected cycle that will be replaced and repeated by variations of other products that meet the same needs and perform the same functions.

The benefits of studying failures
Gaining a better understanding of product failures is important to help prevent future failures. Studying the history of product failures may generate some insight into the reason for those failures and create a list of factors that may increase the opportunity for success, but there are no guarantees.

Examples of product failures
The following is an abbreviated list of product failures that may provide insight that will help to identify product and brand success factors:

Automotive and transportation

• Cadillac Cimarron
• Pontiac Fiero
• Chevrolet Corvair
• Ford Edsel
• The DeLorean
• Crosley
• The Tucker
• The Gremlin, the Javelin and a complete line of other models by American Motors
• GM’s passenger diesel engine
• Mazda’s Wankel rotary engine
• Firestone 500 tire
• Goodyear tires used on the Ford Explorer
• Concorde—supersonic airliner

Computer industry

• IBM’s PCjr—introduced in March 1985
• Apple’s Newton
• Apple’s Lisa
• Coleco’s Adam
• Percon’s Pocketreader—hand held scanner, now operating under the company name PSC
• Bumble Bee’s software version of the book “What Color is Your Parachute”

Entertainment

• Quadraphonic audio equipment
• World Football League
• Women’s National Basketball Association
• World League of American Football
• United States Football League
• “He and She,” “Berrengers,” every spinoff done by the former cast of “Seinfeld,” and dozens of other television shows each year.
• “Of God’s and Generals,” “Heavens Gate,” “Water World,” “The Postman” and other movies—with a disproportionately high number produced by Kevin Costner.

Food and beverage

• Burger King’s veal parmesan
• Burger King’s pita salad
• McRib—and still being tested and tried
• Nestle’s New Cookery—but a successor, Lean Cuisine, is a big hit
• Gerber’s Singles—dinners in jars, for adults—early ’70s
• Chelsea—“baby beer”

Photographic and video

• Polaroid instant home movies
• SX-70 (Polaroid instant camera)
• RCA Computers (Spectra-70)
• Video-disc players
• DIVX variant on DVD

U.S. currency

• Susan B. Anthony Dollar coin—niche in San Francisco, Las Vegas
• Two-dollar bill
• Twenty-cent piece

Other products

• DuPont’s CORFAM —synthetic leather
• Mattel’s Aquarius
• Timex’s Sinclair
• Clairol’s Touch of Yogurt Shampoo (1979)
• Sparq portable mass storage
• Rely tampons
• Relax-a-cizor—vibrating chair
• Louisiana World Exposition—and its gondola

Common reasons for product failures
In addition to a faulty concept or product design, some of the most common reasons for product failures typically fall into one or more of these categories:

• High level executive push of an idea that does not fit the targeted market.
• Overestimated market size.
• Incorrectly positioned product.
• Ineffective promotion, including packaging message, which may have used misleading or confusing marketing message about the product, its features, or its use.
• Not understanding the target market segment and the branding process that would provide the most value for that segment.
• Incorrectly priced—too high and too low.
• Excessive research and/or product development costs.
• Underestimating or not correctly understanding competitive activity or retaliatory response.
• Poor timing of distribution.
• Misleading market research that did not accurately reflect the actual consumer’s behavior for the targeted segment.
• Conducted marketing research and ignored those findings.
• Key channel partners were not involved, informed, or both.
• Lower than anticipated margins.

Using these potential causes of a product or brand failure may help to avoid committing those same errors. Learning from these “lessons” can be beneficial to avoid some of these pitfalls and increase the chance for success when you launch that next product or brand.

Originally published on Bplans.com.

Some people talk of it as a pain point. In this context, the innovation has to solve some problem. Who has the problem it solves? How many people or organizations have it? How much is it worth to them?

Second, after you demonstrate the benefit (or the pain point), then you can start counting the target market that results: as above, how many target customers, why and how do they benefit, where are they, etc.

The third step is to figure out what message to send them and how to send it. That is about target marketing, segmentation, etc. This too is a classic process, the process of developing a marketing strategy.

The same basic process applies to a new innovation as well as to most other business plans: what message, what media, etc.

The fourth step is the estimate of how many of those target market points will adapt this technology and how fast. Put it into numbers.

Look for the classic research on adaptation of new technologies through defined groups, which we refer to in our book On Target: The Book on on Marketing Plans (available with Marketing Plan Pro at http://www.mplans.com). This is where they investigate the pattern of early adapters, opinion leaders, etc.

Make your estimate based on adaptation, quantify it into units and prices, and you have solved the problem. I don’t mean to imply that it is easy, because it is not. But it is a well-known path, the same one followed by many businesses that have introduced innovative products.