| Issue 61 |

Marketing Penetration

This is the first part of an autobiographical article that I published in Status magazine, (Issue 142, June 2003). The article hasn’t lost any of its relevance and it deals with how to get to customers effectively.
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 A. Manhattan, New York, 1993

Another dead-end phone call. Limor, our salesperson, is desperate. How can she set up meetings with restaurant owners when they are never in the restaurant, and when the shift manager claims that the catalog we are about to publish doesn’t interest them?

It’s the early 1990's. The economic boom of the 80's is long gone. Business on Wall Street has decreased drastically. Real estate prices have already dropped and an era of prosperity has come to an end. Restaurant owners, who were among the greatest beneficiaries of the past decade’s celebration, and who enjoyed high turnovers and spend thrifty customers, are now forced to adjust to the new reality.

Most have cut costs and lowered prices. Some didn’t make it and were forced to close down. Others grinded their teeth and carried on, hoping for better days.

How on earth could we convince restaurant owners to meet with us? We want to persuade them to join our delivery catalog. In fact, my partner and I are about to produce and distribute the catalog, called Choices, free of charge. Each restaurant will have its own page with its logo, menu, opening hours, delivery area and phone number. A client calling this number will be directed to the restaurant's phone through a computerized system, which would charge the restaurant every month for the number of calls passed through. One dollar per call. An average delivery costs 12 dollars or more. Surely, this is a worthwhile service for restaurant owners in desperate need of extra income. But how can we get to them?

I look at Limor. She’s an excellent English speaker, with no trace of a foreign accent, she’s convincing and can sell. If she can't do it, then we may never interest restaurant owners in a food delivery catalog. We've already invested a considerable sum in the project. What do we do? Go back to Israel? Suddenly, an idea strikes me. I ponder it for a while and decide to give it a shot. I ask Limor for the phone and call the next restaurant on the list myself.

"Hello. Do you have catering services?" I ask.

“I think so, hold on, I’ll pass you through to the manager", answers the voice.

Limor stares at me dumbstruck, and waits to see what will happen.

"Hello, this is Norman", says an older sounding voice, "how may I help you?"

"I’m interested in catering services. Can you help me?"

"Yes, of course", answers Norman.

"OK, but I’m talking about catering to numerous offices in the vicinity of your restaurant. Can you provide catering of such proportions?"

I can almost feel the excitement on the other side of the line. Norman must be remembering the good old eighties and all the fat orders from firms with long work hours that pampered their employees. "Yes sir, we can offer you excellent quality and our kitchen is ready for orders", answers Norman anxiously.

"OK, sounds good. Can you set up a meeting with the restaurant owner for me?" I ask Norman, trying to sound cool and purposeful. Norman takes down our phone number and promises to call back within five minutes. I thank him politely, while inside I’m shouting BINGO!

Apparently, catering is the magic word we were looking for. Limor started using it and by the end of the day we had set up meetings with all the restaurant owners we wanted to meet. We added a catering page to our catalog, offering catering service advice, guidance and customized catering services from all of the 70 restaurants that finally appeared in the catalog. When we met the owners, offering them a page in a catering and delivery catalog, only one owner asked for "catering only - no deliveries", and when we said there was no such option, he joined the catalog, including delivery.

About seventy restaurants joined the catalog, including ten McDonald’s branches (most of which did not have a delivery service up until then), two Domino's Pizza branches, and several high-end restaurants. When the catalog came out, only a small portion of the orders were for catering services. Still, when restaurant owners saw their page in the prestigious catalog and received orders for food deliveries (which always began with a recorded computerized message saying, "Hello, a client of Choices calling"), no one complained.

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How much does it cost?

It’s time to get our hands a bit dirty and look at pricing.

This topic is a little confusing because it’s not just part of our strategy development. Unlike everything that we have already talked about, it’s also a part of realizing that strategy. The cost of a product does not only determine whether it is worthwhile to sell the product, but also affects its positioning, and how it will be sold.

The issue of pricing is fairly complex, and requires an understanding of finance, marketing, accounting and operations. I’m not going to try to give accurate formulas or define processes here, but just give a general description of the first stage of the pricing process.

Some will say, “What’s the big deal? Let’s take our BOM (Bill of Materials) and multiply it by 4 or 3.” I say that this will (usually) only give you an approximate minimal price. In other words, the threshold price under which it is not worth it for you to sell your product. If possible, isn’t it better to get more?

Others will say, “We have an extremely sophisticated business model and we are giving our product away for free.” And I will say (after I pinch myself to check that I’m not dreaming about 1999) that there’s no such thing as a free lunch and that someone, sometime, will need to pay for it. You should check how much, for what, and if it will be worthwhile for him. If you’re dreaming about charging money from advertisers, then the product that you are selling and need to analyze is “advertising space in a cool site”.

In determining the product’s price, I recommend starting by determining the target price:

What do we think customers will be willing to pay for our product?

These are the first questions that you should be asking: 

• What are the competitors charging?
• If it is an already existent market, how will our product differ from the competition? And how can we quantify this difference?
• If it is a new market, what value does the product bring to the customers?
• Does our product save costs? Create new avenues for revenues?
• Does our product incur additional costs for the customer? .

The answers to these questions need to be quantified. As soon as we have a number in hand, we can use it to derive the price of our product. But additional pricing considerations come into the picture at this stage. For example:

• Is there a specific pricing model that is standard in our market? Should we deviate from it? Will the market enable us to deviate from it?
• Does the difference between our product and competing products justify replacing an existing product with our product, or are our options limited to when customers purchase a new product?
• Are we earning only from product purchases or also from use of it (transition to maintenance and support fees)?
• Is our product sold from the customer’s budgetary limitations? Or perhaps, even though the customer wants the product, he’s having a difficult time budgeting for it this year?

These are just some sample answers. In your process, many additional questions will be raised, which will help you determine your product’s target price. After determining the target price, you have to go back and check what the minimal cost that will ensure you make a profit be. This isn’t so simple, and you should go about it in several different ways and compare results. For example:

• Check it against your business plan: Take your planned expenses during your breakeven year, divide it by the minimal number of planned sales (not the optimal number that you presented to investors, but the lowest possible number). What did you get? (There is a slight distortion here, because the expenses during this year are affected by the size of the company, which is affected by sales…)
• Calculating the cost of an average sale: Travel, people, materials, etc. The cost does not include development and overhead costs, and will give you a figure that is lower than what you calculated in number one above
• BOM x 3: An inaccurate rule of thumb, yet convenient for products that are mostly hardware.

These are just some sample answers. In your process, many additional questions will be raised, which will help you determine your product’s target price. After determining the target price, you have to go back and check what the minimal cost that will ensure you make a profit be. This isn’t so simple, and you should go about it in several different ways and compare results. For example:

• Check it against your business plan: Take your planned expenses during your breakeven year, divide it by the minimal number of planned sales (not the optimal number that you presented to investors, but the lowest possible number). What did you get? (There is a slight distortion here, because the expenses during this year are affected by the size of the company, which is affected by sales…)
• Calculating the cost of an average sale: Travel, people, materials, etc. The cost does not include development and overhead costs, and will give you a figure that is lower than what you calculated in number one above
• BOM x 3: An inaccurate rule of thumb, yet convenient for products that are mostly hardware.

Why is it important to verify the target price before you verify the minimal price? Because if we go in the opposite direction, the minimal price may “anchor” the target price that we set, especially if there is a large difference between them. This is how our brain usually works. So what do you do with these numbers now?

• If the minimal price is higher than the target price: you need to go back to square one and rethink about the nature of your product, and to whom and how you want to sell it
• If the minimal price is lower than the target price: you are on the right track to completing your strategy. You can wrap it up and move on to the real deal, which is making it happen

• The column was written by: Neta Weinrib, an expert on marketing technological products. Information about Neta appears here.
• More information about marketing assistance for technological products appears here.

Ideas for innovations in scissors

 
The following ideas were developed using various thinking tools, and do not exist at present (to the best of our knowledge):

1. Scissors that split into two separate knives (and therefore have multiple uses)
2. Scissors who blades are rough like a file (for polishing and sharpening – like fingernails, for example)
3. Scissors with a built-in digital tape measure that measures the length that has been cut (making it possible to cut more accurately)
4. Scissors with a moveable fulcrum (to increase or decrease the force applied and accuracy, as needed)
5. Scissors that mark direction for continued cutting in a straight line using the tip, instead of cutting right up to the tip (they don’t cut with the very tip but rather mark with a colored line)
6. Scissors with a built-in compass or level (also making it possible to cut accurately in the desired direction)
7. Transparent scissors (it’s easy to see through them to see what and how you’re cutting because they don’t get in the way)
8. Scissors with a very thin point and a blade sharpener on the outer part of the blades (to puncture something hard)
9. Two pairs of scissors that share a fulcrum, which can be adjusted to change the distance between the scissors (for cutting uniform strips)
10. Scissors with a surface that repels glue (Is it just me, or does sellotape tend to stick to your scissors as well?)

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