The Targeted use of Sales and Marketing Resources
For FMCG companies’ investment in Marketing, Trade Marketing and Field Sales is a significant expense. It’s not unrealistic, that this spend should be scrutinised and adjusted, especially in times where volume and value increases are barely above background inflation rates. In this environment it's not difficult to understand why companies are opting to cut back on these elements to maintain an acceptable EBITA performance. Yet, these companies are all to aware that the Sales and Marketing elements being reduced are the foundations for the company and by reducing these functions they place their business growth at further risk.
Perhaps, part of the solution is a move away from the traditional model for Sales and Marketing spend (a shotgun approach) to that of a targeted model. The following sections give a brief explanation of the approaches.
The Shotgun Approach
In this model, an underlying assumption are consumers are seen as being distributed evenly through the marketplace and those consumers are equally distributed amongst the retailers that service them. You may recognise the symptoms of this model with KPI’s that emphasise;
Reach or coverage.
Number of distribution points.
Calls per day.
Call rate frequency. And;
Call duration compliance.
Symptoms of this ideology are probably more obvious in the allocation of customers to Field Sales Resources and Territory Plans where the number of customers allocated is calculated by an equation of Calls per day (C), Days worked per period (D) and call Frequency per customer (F) where:
TotalCalls = (C*D) / F
It’s not that these are unimportant indexes, it just that in this framework they disguise a fundamental flaw that each consumer and retailer are being treated as being of similar value to each other. Yet, we intrinsically know this is not the case. We know some stores trade better than others, we see it in our customer ranking reports. We know there are regions where consumers are more predisposed to consume than others. What we lack though is insight on where they are… or do we?
The Targeted Approach
In consulting circles a new paradigm is being espoused of “do more with less”. Unfortunately, accountants take this literally and reduce the head count and expect similar or better results. This is not what the paradigm means, its intention is to work the existing resources in a more focused manner to get better results from higher yielding customers/consumers and reduce effort/resources with lower yielding customers. In Sales and Marketing parlance this is known as, “Fish where the fish are”.
Sounds good in theory but, how is it achieved?
In the last few years there has been a revolution in Business Intelligence (BI) systems that has seen availability of significant computing power for business managers. The ability to combine data that exists inside and outside of a company has become easier and more accessible. Knowing what’s out there and how to use it is the only limitation.
I’ll illustrate the targeted approach by creating a simplistic scenario using one of the least used information resources available to nearly everyone; census data.
Let’s say your company produces widgets and your main driver of sales is everyone uses widgets. In the shotgun approach, as everyone uses widgets, you would use marketing techniques that ensure wide dispersion and employ the sales team to ensure coverage of all retails outlets and ensure maximum distribution.
However, lets question this methodology, if revenue is driven by population, is the population evenly distributed or is it concentrated in regions? A quick perusal of any census data will quickly show there are population clusters. More advanced analysis will show which concentrations account for a disproportionate percentage of the population. So now, we are starting to see that our large homogeneous market is made up of distinct clusters and these clusters can be ranked in order of size and value. It would then stand to reason that retail outlets in these clusters would be more likely to be higher in widgets sales than those in smaller population clusters. Accordingly, its possible, based upon this simple model to create a regional and store importance list simply upon the dispersion of the population.
Unfortunately, market models aren’t as simple as this and other dimensions need to be included, such as;
1. Competition within a cluster. Population is generally known as a driver of sales and its likely the higher the population the greater the number of competitors which may reduce the yield per outlet.
2. The nature of the competition. In any competitive set there are those that are predisposed to perform better within the cluster due to attributes such as location, range and price (as an example) which would increase the share of population for these outlets relative to others. And;
3. The propensity for consumers to travel to seek out a service. Those in a well populated region with many services are less likely to travel compared to those in a lower populated region with fewer services. Conversely, a retail outlet could be in a low population region but draw consumers from a nearby, higher populated region because that region has no or limited services.
However, these are known and measurable dimensions which can be modeled, giving the seller and buyer the ability to rank order the potential value of regions and retail outlets within a region.
A business manager now has a methodology to better allocate their resources by using a model where a logic, derived from the market, prescribes a value expectation for a region or a store. More importantly, a framework exists to facilitate the answering of fundamental business questions. Such as;
If that is the expected value, what am I achieving?
If it’s less than expected what do I need to change?
Are my territories set up so I’m calling on the higher value customers at a realistic frequency or duration?
Can I get a better result from the higher value customers by increasing frequency and or duration?
Am I over-servicing low-value customers?
These are all good questions that can now be answered.
Market Grunt is a B2B consulting firm operating in the FMCG space specialising in Sales and Business Strategy, Market Model development and Field Sales Training and territory design/shaping.